Oil supply vulnerable decades after embargo
While the nation’s social and economic fiber has changed dramatically, including a recent surge in energy production, could the oil shock of 40 years ago happen again? Today’s continuing dependence suggests yes.
On Oct. 20, 1973, Arab countries banned oil exports to the United States in retaliation for its support of Israel during the Yom Kippur War. The five-month embargo quadrupled energy prices and pummeled the U.S. economy.
The embargo helped launch a U.S. energy revolution as President Richard Nixon, and every successor since, called for “energy independence.” Conservation measures ensued, including a doubling of vehicle fuel efficiency standards, a national 55 mph speed limit, pleas for fewer Christmas lights and a “Don’t be Fuelish” ad campaign.
Some of these efforts petered out in the 1980s and 1990s, but others held. The Strategic Petroleum Reserve and the Department of Energy were established in the mid-1970s, when U.S. funding increased for al- ternative drilling techniques such as hydraulic fracturing (or fracking) that are expected to soon make the U.S. the world’s largest energy producer.
“We’ve come a long way,” Leon Panetta, President Barack Obama’s defense secretary from July 2011 to February 2013, said, citing a push to diversify the U.S. energy portfolio.
Henry Kissinger, who was Nixon’s secretary of state during the 1973 oil crisis, agrees. “We’re better prepared now, by far,” he told an energy conference two weeks ago in Washington, D.C. If Saudi Arabia cut its production and exports, he said the U.S. could buy elsewhere: “They’ve lost the opportunity to blackmail us.”
Yet not changed.
“We remain very vulnerable,” Panetta said, adding it wouldn’t take much for members of the Organization of Petroleum Exporting Countries — which launched the 1973 embargo — or terrorist groups like alQaida to disrupt supplies. He said the U.S. is using less oil per capita than decades ago and relying on the Middle East for a smaller share of its imports, but those shifts almost don’t matter.
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World oil prices, which largely determine what Americans pay at the pump, remain high, because developing countries including China and India are driving up demand. With global oil supplies so tight as a result, even a small disruption rattles the markets and causes price spikes.
That’s why, despite a 50 percent increase in U.S. oil production since 2008, the price for a regular gallon of gas remains so high. It costs, in inflation-adjusted dollars, twice as much as 40 years ago.
“We’re still part of a global oil market,” said Daniel Yergin, oil historian and author of “The Quest: Energy Security and the Remaking of the Modern World.”
The Department of Energy expects imports will continue to fall as U.S. oil production increases because of fracking. This controversial drilling process blasts huge quantities of water, mixed with sand and chemicals, underground to break apart shale formations and release oil as well as natural gas.
“We won’t become energy-independent, but we’ll become less energy-dependent,” Yergin says.