Forty Years Ago, Scarcity Was Our Reality
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 by taking the power from the United States and giving it to the Middle East. As a result of the embargo, America slid into a serious recession.
It was a different world prior to the embargo. America was the dominant player in the energy market and had surplus supply 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 had 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. 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 energy’s 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.
While the 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.
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—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 U.S. “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 even higher.
While U.S. dependence on Middle Eastern oil has reversed course since 1973—increasing for thirty years and declining since 2008, we are 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. Solutions tend to fall into two categories: supply side and demand side.
The supply side is being secured by increasing U.S. oil and gas production—but we can do more. President Obama needs to finally approve the Keystone pipeline. Allowing more access to federal lands and accelerating approval for drilling permits are two other supply side solutions.
On the demand side, Robbie Diamond, founder, president and CEO of Secure America’s Energy Future (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.”
At the Oil Embargo +40 conference, organized by SAFE, held in Washington, DC, on October 16, Fred Smith, Chairman and CEO of FedEx espoused 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.
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.”
We may never see $1 a gallon gasoline again. But, we can be optimistic about America’s potential energy future (if the Obama Administration policies don’t impede its success). Hamm exclaims:
“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.”