The oil weapon: Could shocks of the '70s repeat themselves?
Fifteen years ago, on the Jewish holiday of Yom Kippur, the ``energy crisis'' came into its own. Under a barrage of shelling, Egyptian soldiers overran the Bar Lev line and gave Israel its most desperate moment since the nation's founding in 1948.Skip to next paragraph
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Goaded by Libya's Muammar Qaddafi, Arab nations led by Saudi Arabia cut back their oil production to punish the United States and Europe for supporting Israel. Traffic snarled outside gasoline stations in North America and Europe. Oil prices doubled and redoubled, rising from $2.50 barrel to $10. Inflation soared and energy security became a huge national concern.
Five years later, when the Iranian revolution panicked oil markets, the aggravation of gasoline shortages revisited North America and Europe. Oil hit $34 a barrel.
But that didn't last. High prices prompted exploration, competition from alternative energy sources, and conservation. A deep recession in the early 1980s cooled demand. Since the early '80s, prices have fallen. They are a relatively cheap $14 a barrel today. Adjusted for inflation, they are lower than at any time since the early 1970s.
But with this cheap oil, US dependence on imported energy has grown. Some economists and politicians are wondering if the US is becoming so dependent on foreign oil that the oil shocks of the 1970s could repeat themselves.
Not likely, say most specialists. But it is important not to become complacent.
No Middle Eastern nation today talks seriously of using the oil weapon. Oil is plentiful. Chronic indiscipline within the Organization of Petroleum Exporting Countries (OPEC) has caused prices to tumble in recent weeks to their lowest level in two years - to around $14 a barrel.
The cease-fire between Iran and Iraq frees those nations to turn on the taps to fund reconstruction. If the cease-fire holds, more oil will flow onto the market. Meanwhile, Iraq is demanding continued aid from Saudi Arabia and Kuwait with oil pumped from the ``neutral zone'' between these countries.
So oil analyst William Randol of First Boston in New York expects continued weakness. He thinks $13 a barrel or lower is possible in the next few weeks. Some analysts are talking of $10 a barrel.
This cheap oil, however, carries with it growing dependency, says Daniel Yergin, an influential energy specialist with Cambridge Energy Research Associates in Cambridge, Mass.
``Sometime in the 1990s,'' Mr. Yergin writes in a forthcoming article in Foreign Affairs magazine, ``the United States will likely cross the `continental divide' and become dependent on imports for more than 50 percent of its total consumption - and, indeed, will be headed toward 60 percent.''
At present, the US imports 36 percent of its oil. That's the same level as at the time of the 1973 crisis. Oil demand is rising, and coal and nuclear power carry environmental and safety risks that make their futures look dim.
Still, Yergin thinks the US has a good deal more energy security today than at any time in the past 15 years. This is because of worldwide oil surpluses, a diversified collection of nations that supply oil, conservation efforts, and increasing OPEC and non-OPEC production.
He says energy security can be enhanced by, among other things, slowing the growth of imports through a tax. He also advocates greater use of Canadian energy and continued filling of the Strategic Petroleum Reserve. With foresight and caution, he says, energy security can extend ``to the end of this century and into the next.''
Mr. Randol of First Boston points out that US dependence on foreign oil is growing daily and that mobilization of the Strategic Petroleum Reserve is a ``major if.'' But, he adds, ``OPEC is much poorer now than at the time of the Yom Kippur war. They are in desperate need of oil revenue.'' That would tend to keep OPEC pumping and selling.
G.Henry M. Schuler of the Center for Strategic and International Studies in Washington buys that argument for the most part. But he cautions that the laws of the marketplace can be overturned at any time by someone like Qaddafi.
``The problem is,'' Mr. Schuler says, ``that I've seen it happen. Colonel Qaddafi came along and decided that he would sell less oil and get more revenues for his oil. And it worked. Pretty soon everybody - including Saudi Arabia - was doing it.''
By the late 1970s, the Saudis had abandoned this policy. In this decade, the Saudis have been trying to boost market share. But this has succeeded only in driving down oil prices and hurting oil-producing nations financially, Schuler says. Eventually, he worries, another Qaddafi could come along.
``I'd have to say it is always a real possibility.''