Memories of oil embargo fade as potential oil crisis looms

Flash back to October 1973: Richard Nixon was in the White House and the Watergate scandal was in full cry. The New York Mets and the Oakland As were in the World Series. Helen Reddy, Diana Ross and Grand Funk Railroad were at the top of the pop charts, and Elvis and Priscilla Presley split up. Energy was cheap and plentiful: A barrel of oil cost $ 3, the typical American car got about 12 miles per gallon, and the might of US oil companies seemed unassailable.
And then the Middle East blew up. On the Jewish holy day of Yom Kippur, Egyptian and Syrian forces attacked Israel in a surprise offensive. Israeli troops repelled the invasion, but the Arab nations of the Organization of Petroleum Exporting Countries struck back against the West for supporting Israel.

On Oct. 17, OPEC imposed an oil embargo on the United States and The Netherlands and raised prices 70 % on America's allies in Western Europe. Within three months the price of oil had more than tripled. Suddenly, Americans felt a new sense of vulnerability to events halfway around the world. Motorists were limited to a meagre 5 or 10 gallons at the pump. Gas lines stretched for miles and tempers flared. Homeowners were told to turn down their thermostats and companies were asked to reduce work hours. Daylight-saving time was extended and gasoline sales were banned on Sundays.
The embargo, which lasted nearly six months, triggered a deep economic recession in the United States and other industrialized countries. Oil company stocks rose, but the rest of the stock market plunged.

Thirty years later, the nation is still grappling with the aftershocks of the crisis. Each of the last seven presidents has promised to reduce US dependence on foreign oil, but the problem has only grown worse.
Total oil consumption since 1973 is up 13 %, while net oil imports are up 72 %. Imports from the Persian Gulf have nearly tripled, from 800,000 bpd in 1973 to 2.2 mm bpd in 2002. Transportation -- primarily automobiles -- account for more than 60 %of US oil consumption. But the average fuel efficiency of American automobiles last year was at its lowest point since 1981.
"For the foreseeable future OPEC is still in the driver's seat," said Mark Hopkins, executive director of the Alliance to Save Energy, a bipartisan group formed in response to the oil embargo.

His first week in office, President George W. Bush announced the formation of a national energy task force, telling, "The vice president is going to head the task force to report back to me and to the nation how best to cope with high energy prices and how best to cope with reliance upon foreign oil."
Nearly three years later, Congress is in the final stages of crafting a national energy plan that emphasizes tax breaks and government incentives to increase domestic energy production. But most energy experts say the plan will have no impact on US dependence on foreign oil.
"I call it a Christmas tree," said Robert Ebel, head of the energy program at the Centre for Strategic and International Studies, a Washington think tank. "You have a lot of little decorations on it that make it look good, but there isn't a lot of substance in it that's going to make a difference on either the supply or the demand side."

Oil companies say the global picture is not as bad as some analysts portray it. The United States imports more oil, but the world oil market is far more diverse than it was in 1973.
"We're probably more dependent on (foreign) oil than we were, but I think that we are substantially less vulnerable because we've managed that dependence in such a way that our supplies are more diversified," said Edward Porter of the American Petroleum Institute, the trade association for the US oil industry.

OPEC's share of the world oil market has dropped from about 60 % in the early 1970s to about 40 % today. There are now nearly 100 countries exporting oil, many of which have entered the world market since 1980. Nevertheless, two-thirds of the world's oil reserves are in the Middle East,suggesting that the region will eventually dominate the global market again.
Many of the new sources of oil come from some of the world's most politically unstable regions, including West Africa, Kazakhstan and Azerbaijan. And demand for oil is also growing, not only in the United States, but in developing nations like China and India.

Twenty-five years from now, Porter said, "there is an expectation that demand will grow by something in excess of 40 mm bpd. That's roughly five times the total of Saudi Arabia's current output that has to be added in 20 to 25 years. That's a staggering number." Most energy experts agree that the world demand for oil will not exceed global oil supplies until about the mid-21st century, leaving the United States and other industrial nations time to develop alternatives to conventional oil.
More recently, however, some analysts have revised their estimates of global oil reserves downward, placing the point at which demand exceeds production at sometime between 2010 and2020.
"Most analysts believe that the end is in sight -- at most a couple of decades away," said James MacKenzie of the World Resources Institute, an environmental think tank in Washington. "No one knows what will happen then, but all hell could break loose."

US oil companies downplay such warnings. "The stone age didn't end because we ran out of stones and the oil age isn't going to end because we ran out of oil," Porter said. "We've made several transitions in the past -- from wood to coal and coal to oil -- and the reasons for the transitions didn't have anything to do with exhausting the resource base," Porter said. "Somewhere along the line someone will create an innovation that will crack the transportation market and that will be the beginning of the end of the oil market, but that's not likely to happen in the next 20 years."
Most energy experts agree that without an event of the magnitude of the 1973 embargo, there will not be the political will to force any significant change in US oil consumption.
"We play around the edges," Ebel said. "We all understand we have an energy problem and we have to do something, but doing something usually means changing your way of life."

The 1973 oil embargo profoundly affected the American auto industry. Before the embargo, Japanese automakers' share of the US auto market was a mere 5 %. By the end of 1974 -- as Americans switched to smaller and more fuel efficient cars -- the Japanese share of the market had more than doubled to 11 %.
Two years after the oil embargo, Congress enacted mandatory fuel economy standards for the first time. But the price of oil plummeted in 1986 and the average fuel economy of passenger vehicles peaked in 1988. Sales of less efficient light trucks -- mini vans, sport utility vehicles and small pickups -- took off.

The auto industry has repeatedly fended off attempts to raise the fuel efficiency of automobiles, particularly SUVs. Instead, the industry advocates raising the price of gasoline, a move politically akinto hara-kiri.
"Anytime you make a car more fuel efficient people just drive it more," said Eron Shosteck of the Alliance of Automobile Manufacturers. "Gas is cheaper than bottled water. When you have a cheap commodity such as gasoline there is no incentive for consumers to use less of it. Now if gas were $ 3 a gallon, you might see people changing their driving habits."