WASHINGTON (AP) – The global economy is experiencing a confusing flashback to the 1970s.
Crude oil prices rise again war in the middle eastcausing gasoline, diesel and jet fuel prices to soar and threaten to return to normal. stagflation – The toxic combination of rising prices and slowing growth that made economic life miserable half a century ago.
But the United States and the global economy are no longer as vulnerable now as they were when Saudi Arabia and other Middle Eastern oil producers withheld oil supplies to punish countries that supported Israel in the 1973 Yom Kippur War.
In response to that shock, and the shock caused by the Iranian revolution six years later, countries embarked on new paths to increase energy efficiency, reduce dependence on Middle Eastern oil, stockpile fuel for future threats, and find and develop alternative energy sources.
“We have decades of experience dealing with this type of oil crisis,” said Amy Meyers Jaffe, a research professor at New York University’s Center for Global Affairs.
Of course, the idea that Iran’s current energy shock could have been much worse is of little consolation to frustrated American drivers. Pay $4 or more Giving a gallon of gasoline to European farmers Soaring fertilizer prices And to the street vendors in India who can’t get it. enough gas to cook Serve curry and samosas to customers.
And its scale is unprecedented. In response to the attacks by the United States and Israel that began February 28thIran is effectively Strait of HormuzTwenty million barrels of oil (one-fifth of world production) flowed through it every day.
Lutz Kilian, director of the Dallas Fed’s Center for Energy Economics, estimates that 5 million barrels a day could be rerouted from the Persian Gulf to the Red Sea or continue to pass through the Strait of Hormuz. But that still means a deficit of about 15 million barrels (15%) of global daily oil production, compared to just 6% after the 1973 embargo and Iraq’s 1990 invasion of Kuwait.
soften the impact
Changes made by the United States and other countries over the past 50 years have limited the economic impact of war. In 1973, oil accounted for almost half (46%) of the world’s energy supply. According to the International Energy Agency, by 2023 oil’s share has fallen to 30%.
The world is still using more oil than ever before, with consumption rising from less than 60 million barrels per day in 1973 to more than 100 million barrels per day last year. But compared to 50 years ago, a much larger share of the world’s energy comes from other sources such as natural gas, nuclear power and solar power.
In particular, the United States has broken away from its dependence on foreign oil.
When the oil shock of 1973 occurred, America’s domestic energy production was declining and its dependence on oil imports had increased alarmingly. But the rise of hydraulic fracturing — pumping high-pressure water deep underground to extract previously difficult-to-extract oil and gas from rock — has revitalized U.S. energy production in the 21st century. By 2019, America became a net exporter of oil.
“The U.S. economy is in a much better place than it was in the 1970s, when it was particularly vulnerable to oil price shocks,” said Sam Oli, executive director of the Energy Policy Institute at the University of Chicago.
For example, in the early 1970s, the United States got about 20 percent of its electricity from oil, Oli said. However, a law enacted in 1978 prohibited the use of oil in power plants. Currently, the United States is not powered by oil, except for a few generators in the Alaskan interior, for example.
dim the lights
The 1973 oil embargo was a wake-up call, creating oil shortages and long lines at gas stations in the United States.
On November 25, 1973, President Richard Nixon appeared on television and called on Americans to make sacrifices. He asked gas stations to shut down pumps from Saturday night until Sunday in order to conserve fuel and discourage long-distance driving over the weekend.
He asked Congress to lower the maximum speed limit to 80 mph (legislators settled on 55 mph) and ban decorative and most commercial lighting (which Congress balked at). President Nixon himself promised to dim the White House Christmas lights.
But while those memories may stick with some people, Jaffe of New York University’s Center for Global Affairs says that today, “a repeat of long gasoline lines, fuel rationing, and outright fuel shortages in the United States seems highly unlikely.”
After the 1973 oil embargo, other countries took aggressive action as well.
Britain has shortened the working week to three days to cut electricity consumption as it battles coal strikes and an energy crisis. France ordered offices to turn off their lights at night.
Japan, which relies almost entirely on imports for its oil, has passed a series of “energy conservation” laws (a combination of the Japanese word for “save” or “reduce” and “energy”) mandating energy efficiency in ships, buildings, machinery, automobiles and homes.
Japan also encouraged the use of liquefied natural gas and liquefied gas, and the rapid growth of nuclear power, but backed off on those efforts after the 2011 earthquake and tsunami damaged the Fukushima nuclear power plant. Overall, Japan ranks 21st in the world in per capita energy consumption, as a result of increased efficiency and the widespread use of buses and trains, according to data from the International Energy Agency. America is in 9th place.
More fuel efficient cars, new oil fields
The U.S. government began imposing fuel economy standards in 1975. According to the Environmental Protection Agency, fuel economy has increased from 13.1 miles per gallon for the 1975 model year vehicle to 27.1 miles per gallon for the 2023 model year. In fact, the World Bank attributes much of the global economy’s decline in oil dependence to stricter fuel efficiency requirements for cars around the world.
The shock of the 1970s led to the start of oil exploration outside the Middle East. These include Prudhoe Bay in Alaska, North Sea oil fields off the coasts of Britain and Norway, and oil sands deposits in Canada.
With the hydraulic fracturing boom, U.S. oil production soared from 5 million barrels a day in 2008 to 13.6 million barrels a day last year. During the same period, U.S. natural gas production more than doubled.
Countries also began stockpiling 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 make the information public. 400 million barrels of oil In order to calm down the oil market. It contained 172 million barrels. US Strategic Petroleum Reservefounded in 1975.
Central banks like the Federal Reserve have also learned their lesson. In the 1970s, interest rates were lowered to protect the economy from oil shocks. In doing so, they overlooked the threat posed by rising energy costs, exacerbating already high inflation.
Eleven days before the U.S. and Israeli attack on Iran, Killian of the Dallas Fed said in a February 17 commentary that the Fed made a mistake in cutting interest rates to stimulate the economy during the oil shocks of the 1970s. “The lesson from the 1970s is that well-intentioned policies to stimulate the economy by cutting interest rates can inadvertently reignite inflation.”
President Trump cancels efforts to reduce oil dependence
Despite much change, Oli warns, “Oil is still king, the No. 1 fuel for the American economy. Cars, planes, trucks, and ships get about 90 percent of their energy from oil. The lifeblood of our economy, the transportation sector, remains overwhelmingly dependent on petroleum fuels, whose prices are determined by global markets. And disruptions anywhere affect prices everywhere.”
He also said that the president Donald Trump is trying to roll back many policies It was intended to reduce America’s dependence on oil and encourage the use of electric vehicles.
President Trump’s sweeping tax bill last year eliminated up to $7,500 in consumer credits for EV purchases. He announced a proposal to loosen U.S. fuel economy standards and eliminate fines for automakers that don’t meet them.
“When you put all this together, the fact is that the United States is moving in the opposite direction, making major changes to further protect the economy from oil shocks and oil price fluctuations,” Oli said.
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Kageyama reported from Tokyo.
