Washington– The global economy is witnessing a confusing return to the 1970s.
Oil prices rise again in the wake of War in the Middle EastWhich led to an increase in the cost of gasoline, diesel, and jet fuel, and the threat of a return to them Stagflation That toxic combination of high prices and slow growth that made economic life so miserable half a century ago.
But the U.S. and world economies are now less at risk than they were when Saudi Arabia and other Middle Eastern oil producers blocked oil supplies to punish countries that supported Israel in the Yom Kippur War in 1973.
In response to that shock – and another shock sparked by the Iranian revolution six years later – countries embarked on a new path to increase energy efficiency, reduce their dependence on Middle Eastern oil, store fuel to confront future threats, and find and develop alternative sources of energy.
“We now have decades of experience dealing with these types of oil shocks,” said Amy Myers Jaffe, a research professor at New York University’s Center for Global Affairs.
The idea that Iran’s current energy shock could have been worse is no comfort to frustrated American motorists Pay $4 or more For a gallon of gasoline, for the European farmers with whom they compete Fertilizer prices rise And street vendors in India who cannot get Sufficient amount of gas for cooking Curries and samosas for their customers.
The sheer size is unprecedented. In response to the attacks that began between the United States and Israel February 28Iran is effectively shut down Strait of HormuzThrough which 20 million barrels of oil – or a fifth of global production – flow daily.
Lutz Kilian, director of the Center for Energy and Economics at the Federal Reserve Bank of Dallas, estimates that 5 million barrels per day could be redirected from the Persian Gulf to the Red Sea or continue to transit through the Strait of Hormuz. But this still means that nearly 15 million barrels – or 15% – of daily global oil production is lost, compared to just 6% in the 1973 embargo and after Iraq’s invasion of Kuwait in 1990.
Changes made by the United States and other countries over the past five decades have limited the economic fallout from the war. In 1973, oil represented nearly half – 46% – of the world’s energy supply. By 2023, oil’s share has fallen to 30%, according to the International Energy Agency.
The world is still using more oil than ever before: consumption exceeded 100 million barrels per day last year, compared with less than 60 million barrels per day in 1973. But a much larger share of global energy comes from other sources — such as natural gas, nuclear, and solar power — than it did five decades ago.
The United States, in particular, has weaned itself off dependence on foreign oil.
When the oil shock of 1973 hit, America’s domestic energy production was declining, and its dependence on oil imports was growing alarmingly. But the advent of hydraulic fracturing technology — pumping high-pressure water deep underground to extract oil or gas from rocks that were previously difficult to obtain — has revamped U.S. energy production in the 21st century. By 2019, America had become a net oil exporter.
“The US economy is in much better shape than it was in the 1970s,” when it was “particularly vulnerable to an oil price shock,” said Sam Urey, executive director of the Energy Policy Institute at the University of Chicago.
In the early 1970s, for example, the United States got about 20% of its electricity from oil, Urey said. But a law was issued in 1978 prohibiting the use of petroleum in power plants. Now the United States doesn’t get its electricity from oil, except for a few generators in far Alaska, for example.
The 1973 oil embargo was a wake-up call, resulting in shortages that led to long lines at American gas stations.
On November 25, 1973, President Richard Nixon appeared on television to ask the American people to make sacrifices. In order to conserve fuel, he urged gas stations to close their pumps from Saturday night until Sunday, in hopes of discouraging long-distance driving on the weekend.
He asked Congress to lower the speed limit to 50 mph (lawmakers settled on 55 mph) and ban decorative lighting and most commercial lighting (which they refused). Nixon himself promised to turn off the Christmas lights in the White House.
But while those memories may have left a lasting mark on some, Jaffe of New York University’s Center for Global Affairs says that “a repeat of long gasoline lines, fuel rationing, and outright fuel shortages in the United States today seems highly unlikely.”
Other countries took aggressive action after the 1973 oil embargo as well.
The UK, facing a coal strike as well as an energy crisis, has cut the working week to three days to cut electricity consumption. France ordered offices to turn off lights at night.
Japan, which relies almost entirely on imported oil, passed a series of “sho-ene” laws — which combined the Japanese words for “conserve” or “reduce” with the word “energy” — that mandated energy efficiency in shipping, buildings, machinery, cars, and homes.
Japan has also encouraged the use of liquefied natural gas (LNG), gas and the rapid growth of nuclear power, efforts that declined after the 2011 earthquake and tsunami that damaged the Fukushima nuclear plant. Overall, Japan ranks 21st in the world in terms of per capita energy consumption, according to IEA data, as a result of its efficiency and widespread use of buses and trains. The United States is number 9.
The U.S. government began enforcing fuel economy standards in 1975. Fuel economy rose from 13.1 miles per gallon for 1975 model year vehicles to 27.1 miles per gallon for 2023 model year vehicles, according to the EPA. In fact, the World Bank attributes most of the decline in the global economy’s dependence on oil to more stringent fuel efficiency requirements for cars around the world.
The shocks of the 1970s also launched searches for oil beyond the Middle East – Alaska’s Prudhoe Bay, the North Sea fields off the coast of the United Kingdom and Norway, and oil sands deposits in Canada.
With the boom in hydraulic fracturing, US oil production rose from 5 million barrels per day in 2008 to 13.6 million barrels per day last year. During the same period, natural gas production in the United States doubled.
Countries also began storing oil and established the Paris-based International Energy Agency in 1975 to coordinate responses to energy shocks. Last month, the agency’s 32 member states agreed to release them 400 million barrels of oil In an attempt to calm the oil market; It included 172 million barrels of US Strategic Petroleum Reserveestablished in 1975.
Central banks, such as the Federal Reserve, have also learned lessons. In the 1970s, they lowered interest rates to protect the economy from oil shocks. In doing so, they ignored the threat posed by rising energy costs – and made inflation, already high, even worse.
In a February 17 commentary – 11 days before the United States and Israel attacked Iran – the Dallas Fed’s Killian wrote that the Fed erred in cutting interest rates to boost the economy when the oil shocks of the 1970s hit: “What we can learn from the 1970s is that the well-intentioned policy of stimulating the economy by lowering interest rates may inadvertently reignite inflation.”
Although a lot has changed, the University of Chicago’s Urey warns: “Oil is still king, and it is the number one fuel in the American economy. Cars, planes, trucks and ships get about 90% of their power from oil. The lifeblood of the economy – the transportation sector – still depends heavily on petroleum fuels, whose price is set on the global market, and any outage anywhere affects the price everywhere.”
It also indicates that the president Donald Trump is reversing many policies It aims to reduce America’s dependence on oil and encourage the use of electric vehicles.
Trump’s sweeping tax bill last year ended consumer credits of up to $7,500 for electric vehicle purchases. He announced a proposal to weaken U.S. fuel economy standards and eliminate fines on automakers that don’t meet those standards.
“Taken all together, the reality is that the United States is moving in the opposite direction of making major changes to further insulate the economy from oil shocks and oil price volatility,” Urey said.
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Kageyama reported from Tokyo.