Energy Revolution

40 Years After the 1973 Oil Embargo: The State of American Energy

The OPEC oil embargo marked the end of American dominance on energy. Four decades later, the shale boom and efficiency has U.S. oil imports down — but the Gulf states are still sitting pretty

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Harry Hamburg / NY Daily News Archive via Getty Images

Cars line up around the block for gasoline in New York during the 1973 oil crisis

Forty years ago this week, in response to U.S. support of Israel in the October War, the Arab members of the crude cartel OPEC launched an oil embargo, essentially banning exports to America and eventually Western Europe and Japan. The timing couldn’t have been worse. Domestic oil production had peaked at a little less than 10 million barrels in 1970 before declining sharply as once reliable conventional wells in states like Texas started to dry up. Over the next five years, crude imports nearly doubled, as the U.S. became increasingly dependent on suppliers in the oil-rich states of the Middle East. When those providers decided to turn off the taps, oil prices in the U.S. quadrupled. Together with ruinous price controls, that led to long lines for gas and an economic crisis.

Though Middle Eastern producers resumed exports in March 1974, the scars of the embargo would be deep and lasting. The U.S., a country that supplied 63% of the world’s oil at the beginning of World War II, would see its crude imports spiral as domestic production continued to dwindle. Energy independence drifted further and further out of reach. In a speech in 1977, President Jimmy Carter warned that oil and natural gas “were simply running out,” and predicted that global crude production would peak in the 1980s. “The world was scarred by the 1973 oil embargo,” says Jeff Colgan, a professor at American University’s School of International Service. Scarcity became America’s energy reality.

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As I and just about every other energy reporter have written over the past few weeks, that’s no longer the case. Thanks in part to new drilling technologies and far better energy efficiency — both inspired by the aftereffects of the 1973 crisis — the U.S. is an energy superpower today, passing Russia this year as the world’s biggest producer of combined oil and natural gas. U.S. crude oil production has increased by 50% since 2008, and the U.S. Energy Information Administration has predicted that domestic oil production could hit 8.4 million barrels a day by next year, which would put America on nearly the same level as Saudi Arabia. And those changes are attributable at least in part to the 1973 embargo, which forced producers in North America to find new ways to find hydrocarbons, even as policymakers belatedly began to embrace energy efficiency, establishing gas-mileage standards and even setting the 55-mph (88.5 km/h) speed limit in an effort to reduce oil use. Globally, even as consumption of oil has continued to increase — it remains the world’s single biggest source of energy — its share in the international energy mix has fallen, from 48% of all energy in 1973 to 33% in 2012.

That revolution — mostly thanks to fracking opening up shale oil fields in Texas and North Dakota, as well as efficiency measures that have oil demand in the U.S. plateauing — is remaking the global oil markets, putting pressure on OPEC and other traditional producers. The International Energy Agency (IEA) estimates that non-OPEC oil producers — led by the U.S., Canada and Kazakhstan, which has said it plans to raise oil production to over 2 million barrels a day by 2025 — will increase global supplies by a near record 1.7 million barrels a day to 56.4 million, reducing the amount of oil the world needs from OPEC. (Last month OPEC output fell to less than 30 million barrels a day for the first time in almost two years, thanks largely to continued unrest in Libya and global economic sanctions imposed on Iran over its nuclear-enrichment program.) OPEC’s share of global oil production has fallen from a peak of 52% — in 1973 — to 43%, a share that seems likely to continue falling. Things have even shifted on the customer side: last month China became the world’s biggest oil importer, passing the U.S. That shift will continue, with Asian countries projected to increase net imports of crude and refined products by more than 10 million barrels a day by 2035.

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So the U.S. is in much better shape than it was in 1973, and OPEC seems like it’s on the ropes. But that’s not the whole story. Even as the U.S. and other non-OPEC producers have been pumping more and more oil, they’ve been more than matched by the key Middle Eastern members of OPEC, which are doing as well as ever. Saudi Arabia, Kuwait, the United Arab Emirates and Qatar set aggregate production records in each of the past three months, according to the IEA. And because oil is historically expensive at over $100 a barrel — something that increased U.S. production has done little to change — those countries are printing money, with oil revenue for the third quarter of 2013 coming in at more than $150 billion. The Gulf states — which enjoy much lower per-barrel production costs than the U.S. — are set to dominate the rising Asian market, with China relying on the four countries for a quarter of its imports, up from 21% in 2007. And they still sell in bulk to the U.S., which imports around 2 million barrels of oil a day from the Gulf states, a figure that has actually increased over the past few years even as overall American imports fell. (It’s West African oil producers that have been hit hardest by decreased North American imports.) “Despite the shale revolution, the Middle East is and will remain the heart of the global oil industry for some time to come,” IEA chief economist Fatih Birol told the Financial Times.

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Indeed, as Coral Davenport writes in the National Journal, the U.S. may be an energy superpower, but that doesn’t mean it can dictate global oil policy:

But there’s one thing the new oil and gas supplies can’t do: insulate Americans against a price spike in the case of a major disruption. Were the Arab oil embargo to happen today, the U.S. would have access to its own oil supply, but the price shocks would nonetheless reverberate around the globe, hurting all economies — including this one. That’s because the country still can’t go it alone despite the boom in domestic production: in 2005, the U.S. imported 60% of its oil; today, that’s down to 40%. Nevertheless, America is still nowhere close to producing as much energy as it uses.

A new report from Securing America’s Future Energy (SAFE) — a nonprofit group focused on reducing U.S. oil imports — confirms that, finding that the U.S. remains one of the more vulnerable countries on oil security, though the recent boom in domestic production has helped. And even that boom itself could be on uncertain grounds; fracking isn’t cheap, and shale oil may remain viable only if global crude prices stay high or if producers can bring down their costs.

America has come a long way since 1973 — and I don’t just mean the fashions and the sideburns. OPEC’s influence has been diminished, and oil can no longer be used as a weapon the way it was 40 years ago. But one thing hasn’t changed much in all that time: oil is still by far the dominant fuel that gets us from point A to B. Until that changes — and greener options like electric vehicles and truly sustainable biofuels become more viable alternatives — we’ll still be stuck in the ’70s.

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