Goodbye OPEC, Hello Independence

Goodbye OPEC, Hello Independence
October 22, 2013

Marita Noon

Marita Noon is the executive director for Energy Makes America Great Inc. and the companion... (read full bio)

October 17 was the fortieth anniversary of the oil embargo slapped on America by the Organization of Petroleum Exporting Countries (OPEC). That action changed the entire geopolitical map—taking the power from the United States and giving it to the Middle East. As a result of the embargo, the price of gasoline quadrupled, gas stations had multi-hour long lines, and the stock market plummeted—kicking off a serious recession.

 

My entire driving life has been impacted by OPEC’s actions. On October 17, 1973, I was 15—days away from turning 16. I got my driver’s license on my sixteenth birthday.

 

It was a different world prior to the embargo. America was the dominant player in the energy market—supplying 63 percent of the world’s oil at the beginning of World War II—and had surplus supply. The surplus neutered OPEC’s previous embargo attempts in 1956 and 1967, as the U.S. was able to fill the demand gap OPEC created.

 

It wasn’t the embargo itself that changed the dynamic, but the timing of it.

 

U.S. oil production peaked in 1970 and declined sharply in the subsequent years. When OPEC chose to use oil as a diplomatic weapon in 1973, America was no longer the swing producer with the ability to fill in the gaps. We’d become increasingly dependent on suppliers from the oil-rich Middle East. Scarcity was our reality.

 

To punish the U.S. for supporting Israel in the Yom Kippur War, OPEC banned oil exports to the U.S. and, eventually, other countries. OPEC then reduced production by 5 percent per month until the embargo ended in March of 1974.

 

For the past forty years, OPEC has controlled the geopolitical equation. Every president since Richard Nixon has urged the country to strive for energy independence so that we don’t face another energy crisis like 1973.

 

Remembering the embargo, Henry Kissinger, who was Secretary of State during the 1973 oil shock, said at a national summit on energy security: “You could not make plans in the Middle East or involving the Middle East, without keeping in mind the considerations of the oil market.”

 

While the social, political, and economic impacts of the embargo have been harsh, there’s also a silver lining: North American producers were forced to find new ways to explore for and produce hydrocarbons—and those technologies and techniques developed by individuals and industry have, once again, changed the geopolitical equation.

 

The 1973 OPEC oil embargo revealed a serious weakness in America’s energy and national security.

 

According to the Reuters story on the embargo’s anniversary: “The United States is less reliant each month on Middle East energy, thanks to increasing production of both oil and natural gas from technologies such as hydraulic fracturing, or fracking, which allows extraction of oil and gas from shale deposits.”

 

While the U.S. is less reliant on the Middle East due to the increasing production of our domestic resources—with our crude oil production up by 50 percent since 2008, it isn’t actually due to hydraulic fracturing, as Reuters states. According to Harold Hamm, who is credited with being one of the first wildcatters to take a chance on developing North Dakota’s Bakken field, saying that “fracking is the root of America’s new supplies of oil and gas” is a misconception that has “been erroneously driving public discourse and policy.” Hamm comments on the embargo’s anniversary in Forbes: “It’s also time for America to hear the truth about the real source of our modern-day oil and natural gas renaissance—horizontal drilling.” (The distinction is important as fracking has been used by the environmental lobby to create fear when in fact fracking has been consistently in use for more than 60 years.) Extolling how far America has come since the 1973 embargo, Hamm states: “Never again are we going to be held hostage and extorted.”

 

Hamm is correct. As the Wall Street Journal says, “greater U.S. oil production gives foreign-policy flexibility.” Likewise, Time Magazine affirms: “OPEC's influence has been diminished, and oil can no longer be used as a weapon the way it was 40 years ago.”

 

How does energy security give the US “foreign-policy flexibility?” One example is Iran. Reuters reports: “Last year, Washington and its European allies orchestrated a partial boycott of Iranian oil, to compel Tehran to return to talks about its nuclear program. The sanctions against Iran took roughly 1 million barrels per day off world markets—without the price spikes many predicted.” Additionally, U.S. production has helped dampen price spikes from supply problems in Nigeria, Libya, and Sudan—and made us less vulnerable to Middle East oil shocks. Without the domestic supply, current gasoline prices would be higher, not lower.

 

While U.S. dependence on Middle Eastern oil has reversed course since 1973—increasing for thirty years and declining since 2008, we are surprisingly still importing the same percentage of oil that we did 40 years ago: 35 percent.

We have come a long way, but there is still much that can be done to reduce use of Middle Eastern oil and improve our energy and national security—and that was the focus of the Oil Embargo +40 conference held in Washington DC on October 16. The conference brought together iconic policymakers, leading CEOs, and senior military leaders to discuss the often overlooked threat of oil dependence and the solutions that are now within our reach. (Note: the conference website features an excellent “Forty Year Energy Security Timeline.”)

 

Sam Ori, Executive Vice President of Secure America’s Energy Future (SAFE), the non-partisan group aimed at reducing U.S. dependency and the organizer of the conference, told me that solutions generally fall into two categories: supply side and demand side.

 

The supply side is being secured by increasing US oil and gas production—but we can do more. Some of the solutions addressed at the conference include calling on President Obama to finally approve the Keystone pipeline, accessing more federal lands, and accelerating approval for drilling permits. SAFE proposes that a portion of revenue generated from new drilling on federal lands should be invested in a research-and-development trust fund to help develop new technologies for using oil more efficiently. Such a trust fund could develop innovations without raising taxes and without government picking winners and losers, such as we’ve seen with Solyndra and the 50+ other green energy projects, which were funded through Obama’s 2009 stimulus bill and have already gone bankrupt or are circling the drain.

 

On the demand side, the experts recommend diversifying the transportation fleet by integrating natural gas and electricity. Ken Blackwell, a Senior Advisor to SAFE, explains: “electric vehicle technology is uniquely advantageous in the fight against OPEC, because electricity can come from multiple sources including coal, natural gas, and nuclear. Ohio coal should be burned to generate electricity used to power electric vehicles and, as a result, displace oil-based gasoline. We should invest in innovative research to foster oil displacement, not an environmentalist agenda.”

 

At the conference, Fred Smith, Chairman and CEO of FedEx addressed the benefits of electric vehicles for short-haul, light-duty vehicles and natural gas for longer haul trucks and Dan Akerson, Chairman and CEO of General Motors announced, a new bi-fuel Chevrolet Impala that will use both conventional gasoline and compressed natural gas.

 

Robbie Diamond, founder, president and CEO of SAFE, concludes: “The domestic oil boom has already reaped tremendous benefits, but integrating natural gas and electricity into America’s transportation system is a necessary way to diminish both our dangerous reliance on a single commodity and our economic exposure to the global oil market.”

 

Could America still feel the shockwaves of supply disruptions caused by Middle Eastern instability? Yes, but we are far less vulnerable today than we were in 1973, as the geopolitical equation continues to evolve. A recent report from Citigroup points out that by the end of the decade, the U.S. “could be freed from the shackles involved in sacrificing a values-driven policy focusing on human rights and democratic institutions in order to secure cooperation from resource-rich despotic regimes.” 

 

Will I ever see $1 a gallon gasoline again? No. But, I am optimistic about America’s potential energy future (if the Obama Administration policies don’t impede its success) and I share Hamm’s enthusiasm: “Perhaps most significantly on the 40th anniversary of the OPEC Oil Embargo, U.S. gasoline prices are down despite an escalating crisis in the Middle East, and we are no longer beholden to go to war and sacrifice American lives to protect our oil interests.”

Marita Noon

Marita Noon is the executive director for Energy Makes America Great Inc. and the companion... (read full bio)