Less reliance on oil shields US economy from conflict in Mideast
The terrorist attacks on Israel last month, timed to coincide with one of the holiest days in Judaism, echoed similar assaults on the Jewish state by Egypt and Syria 50 years earlier that shocked the global economy and brought the world perilously close to nuclear Armageddon.
Outside of the region itself, the latest conflict does not carry the same immediate economic or geopolitical impact, but a key lesson from the fighting five decades ago is how quickly proxy wars can metastasize, with devastating humanitarian and economic consequences.
Though Israel suffered battlefield losses over the first days of the 1973 war, its army eventually took control, advancing on Damascus and trapping the Egyptian Third Army in the Sinai. Ceasefire proposals came and went. Fearing its influence in the region was at stake, the Soviet Union rushed weapons to its Egyptian and Syrian allies. The United States did the same for Israel, setting up a potential confrontation between nuclear-armed superpowers.
Over the Moscow-Washington hotline — remember that remnant of the Cold War? — Soviet premier Leonid Brezhnev told President Richard Nixon that unless the U.S. agreed to send troops to enforce a ceasefire alongside Soviet forces, “we should be faced with the necessity urgently to consider the question of taking appropriate steps unilaterally.” Nixon declined the ultimatum, and instead put American nuclear forces on a state of readiness known as DEFCOM.
Meanwhile, U.S. reconnaissance aircraft were monitoring Soviet fleet
movements in the Mediterranean. “Our job was to keep an eye on the decks,” remembered Robert Rubel, a Navy pilot who later became dean of the Naval Warfare Center. “If we saw the smoke of a missile launch, we’d send a Zippo report back, as in ‘Hey, World War III is on.’ The idea was that we’d get that report out before we died.”
Though controversial and possibly unnecessary, the DEFCOM alert may have served a purpose. Later that day, the U.N. Security Council adopted Resolution 340, imposing a ceasefire that effectively ended the war. For the United States, however, its military support for Israel would have critical consequences: a five-month cutoff from urgently needed Middle East oil.
Paying a price through the oil embargo
The economic impact of the embargo by Arab members of the Organization of Petroleum Exporting Countries (OPEC) was immediate and severe. Within weeks, the U.S. economy had fallen into a recession that lasted for 16 months. Unemployment hit 9%, inflation spiked to 11%, and the oil price quadrupled.
By January 1974, energy conservation efforts compelled Nixon, then engulfed by the Watergate scandal, to put the country on daylight savings time in the dead of winter. Americans were urged to forgo Christmas lights and consumers, panicked over widespread energy shortages, waited in gas lines that stretched for blocks, and occasionally, for miles. Some states imposed oddeven days for filling up — assuming that was even possible — while gas stations used color-coded flags to indicate their level of supply.
Policy mistakes made a bad situation worse.
Michael Bryan of the Federal Reserve Bank of Atlanta, wrote that “Motivated by a mandate to create full employment with little or no anchor for the management of reserves, the Federal Reserve accommodated large and rising fiscal imbalances and leaned against the headwinds produced by energy costs. These policies accelerated the expansion of the money supply and raised overall prices without reducing unemployment.”
The aftermath led to national speed limit, other changes
The 1973 Yom Kippur war was the impetus for the first national speed limit (55 mph on U.S. interstate highways), the creation of the Strategic Petroleum Reserve, the move toward smaller, more energy efficient automobiles, and the goal of national energy independence.
Economic fallout from the current conflict is less dire, though the geopolitics remain fraught and unpredictable. As a percent of gross domestic product, U.S. energy expenditures have fallen by two-thirds since the 1970s. Despite the possibility of a wider war and the ongoing fighting in Ukraine, gasoline prices have barely budged since the onset of the hostilities. As for energy independence, the U.S. is now a net energy exporter, though still at significant risk from price spikes in the global oil market.
Then again, economic issues pale in importance alongside a humanitarian catastrophe of epic proportions — and not just in the Middle East, but in much of the developing world as well. We do not have to shield our families from incoming rockets, or carry them across the 70 miles of hell known as the Darien Gap to escape political violence and economic deprivation. Yes, we have 3.7% inflation and food prices have strained budgets, but for all the vitriol and discontent in American life, maybe a little perspective might help calm the national psyche.
Tom Saler is an author and freelance journalist in Madison. He can be reached at tomsaler.com