The 1973 OPEC Oil Embargo: A Preview of Peak Oil

I've found that critics of peak oil seem to laugh it off as some outlandish theory or a scare tactic to make everyone believe we are going to run out of oil next year. But Peak oil isn't about running out of oil, it's about the end of "cheap" oil. Many of the luxuries that we enjoy today, expected growth in the economy and stock market, and our basic American way of life are all supported by the underlying platform of access to cheap oil and energy. Oil does not have to run out before America feels the effects of higher energy prices -- that's the whole point -- we're going to feel the effects at the peak, when global demand outstrips oil supplies.

One of the first things I've learned when I started researching peakoil, is that spikes in high oil prices have indeed happened before, and due to my birthdate of March 30, 1980, I never experienced the oil shocks of 70's firsthand. I never knew a time where the United States and the Saudis didn't "play nice" as they seem to do now. The most important facts for me personally, regarding the 1973 oil embargo is that it was based on geopolitical events, while global peak oil is based on actual geological limitations, meaning that no nation while be able to make the difference between demand and supply -- think of peak oil as a permanent oil embargo. Also the increase in prices of oil barrels were relatively small and the effects on the economy were devastating -- it's scary to imagine what will happen to the wold ecomony after a gloal peak occurs.

Background:

In 1973, Saudi Arabia had tremendous surplus capacity. The country had more oil to start with than the United states had had a hundred years earlier. By the 1970's as America passed its all-time production peak, Saudi Arabia oil production was just entering its robust phase. Production was run by Aramco, a join venture mong Exxon, Texaco, Mobil, and Chevron (previously known as Standard Oil of California).

The 1973 Yom Kippur war was the precipitating incident of the OPEC ("Organization of Petroleum Exporting Countries")embargo. On October 6th, Egyptian and Syrian forces caught the Israeli military off-guard on the most solemn Jewish holiday, when many soldiers were home with their families. Because the Arab-Israeli dispute was commonly viewed as yet another cold war proxy battle, the US and its allies naturally lined up behind Israel against the Soviet sponsored agressors. Egypt's President Anwar Sadat implored the Saudi's and other Muslim states to use the "oil weapon" against Israel's allies.

On October 12th, the Saudi-led OPEN demanded of the various Western companies doing business in the Middle East, including Aramco, a 100% increase in the posted price of the cartel's oil. The companies stalled for time. On October 16, the Persian Gulf region OPEC members broke off negotiations with Western oil companies and announced they would set prices themselves. On October 17th, the Israeli's gained the upper hand on the battlefield , thanks in large part to aggresive American resupply efforts, and began to push the Egyptians back. The same day, Arab oil ministers announced an oil embargo on the United States, while increasing prices by 70% western Europe. On October 19th, President Richard M. Nixon announced a military aid package for Israel and the following day, Saudi Arabia retaliated by announcing a total cutoff of oil exports to America.

The embargo never achieved a shutoff of OPEn oil imports to the U.S. All but 5% of needed supply found its way to America by redirecting allocations to other nations. However, the base price of a barrel of oil did eventually more than quadruple by the time the embargo was called off in March 1974. The price rise alone staggered the West and Japan.

Effects of the Embargo

• Lines of cars formed at the gas stations
• Posted prices changed hourly in some places as station owners took advantage of a panic situation
• Fights broke out among motorists waiting in line
• Odd and even license plate numbers were used to assign gas-buying privileges on certain days of the week
• The industry's own national allocation system failed and some parts of the United States got plenty of gasoline while others got none at all
• President Nixon proposed an extension of daylight savings time and a total ban on the sale of gasoline on Sundays
• Gas ration stamps were printed by never used
• Prices of food and manufactured goods shot up - the entire American workforce suffered, in effect, a substantial cut in pay
• The stock market dropped 15% in a month, and a year later it would be down 45% from its pre-embargo high
• The Big Three auto manufacturers selling gas guzzling oversized fleets suffered plummeting sales and lost market share to European and Japanese auto manufacturers
• Price inflation and economic stagnatation led industrial nations into deep recessions, the worst since the 1930's

President Jimmy Carter attempted to awaken the American public to the idea that the energy crisis was a more or less permanent condition relfecting the real drawdown of the nationa's numer one nonrenewable resource. He attempted to fashion a coherent national energy policy , passed tax and rate incentives for hydroelectric development, restarted Nixon's "Project Independence" to develop synthetic hydrocarbon and alternative fuels. In April 1977, Carter declared the nation's energy predicament was the "moral equivalent of war." He also installed solar water heaters on the White House roof and a wood stove in the White House, which were both subsequently removed by Ronald Reagan.

(Sources: The Long Emergeny by James Howard Kuntsler and www.wikipedia.org)