The recent attack by Hamas on Israel on October 7 did not go unnoticed, especially considering it occurred just one day after the 50th anniversary of the Yom Kippur War. This event, combined with other factors, also led to a noticeable rise in oil prices.
However, it's worth noting that things have changed significantly over the past half-century. Unlike in 1973, long lines of cars queuing up for gasoline are unlikely to be a part of our future this time around. The world, including the United States, has become far less dependent on oil, particularly OPEC oil.
Back on October 15, 1973, just nine days after Egypt and Syria launched a surprise invasion of Israel, Lawrence A. Armour highlighted the challenges faced by the stock market due to the ongoing conflict. It was a time when the Cold War tensions were escalating - the U.S. was strongly backing Israel while the USSR supported the Arabs. Despite initial successes for Egypt and Syria, Israel managed to recover from its initial setbacks. Eventually, on October 25, a U.N.-brokered cease-fire was established.
However, while the military conflict came to an end, an economic war began on October 22 when Arab states, led by Saudi Arabia, implemented an oil boycott against the U.S. and its allies due to their support of Israel. Within just six months, crude oil prices tripled. The U.S., once the leading oil producer globally, suffered the consequences of its growing dependence on OPEC imports.
In response to this crisis, the Nixon administration introduced a new initiative on November 7 known as "Project Independence." Created by Federal Reserve Chairman Arthur F. Burns, this initiative aimed to liberate the U.S. from the influence of "Arab blackmailing sheiks," as Burns himself wrote in his personal diary. Although Project Independence did not immediately solve the crisis (aside from frustrating drivers with a despised 55-mph speed limit), it laid the foundation for future U.S. energy independence.
Meanwhile, the United States experienced a significant increase in gasoline prices, leading to a shortage of supplies. Service stations frequently ran out of fuel, resulting in limited operating hours and long lines of cars awaiting their turn for gas.
Despite government efforts to address the issue, the situation remained challenging at the time.
On March 1, 1974, the lines for gasoline in California seemed to stretch on forever. California Gov. Ronald Reagan's 'odd-even' gasoline marketing plan came into effect, leaving drivers frustrated and anxious. The Oakland Tribune reported that not only were the lines long, but there was also an increase in the price of gas at the pumps.
A Nation on Edge
During this time, tensions were high. A man filling his tank with 53.9 cents per gallon gas in Albuquerque expressed his frustration to the Albuquerque Tribune on March 5, 1974. He believed that the shortage was purposely orchestrated to drive up prices, and he had reached his limit.
The embargo eventually ended in March 1974, but low gas prices never returned. This setback occurred amid stagflation—an already challenging period for the United States characterized by low growth, high unemployment, and rising inflation.
Overcoming Stagflation and Breaking the Dependency
However, America didn't succumb to these challenges forever. The country found a way to beat stagflation and break its dependence on OPEC crude. The advent of the fracking revolution allowed for the extraction of oil and gas from previously untapped areas within the United States. Additionally, renewable energy sources played a significant role in rejuvenating the energy industry.
According to the U.S. Energy Information Administration, in 1973, 46% of U.S. energy consumption was derived from petroleum, while coal provided 22%, natural gas 21%, and renewables only 5%. Fast forward to 2022, and we see significant changes in energy consumption. Petroleum accounted for 36% of energy consumption, coal dropped to 10%, and both natural gas (33%) and renewables (13%) experienced substantial increases.
The U.S. also made significant strides in energy efficiency during this transformative period. Gasoline-powered cars in 2022 boasted an impressive 25.7 mpg compared to a meager 13.5 mpg in 1973. Moreover, homes built after 2000 managed to use 21% less energy than their older counterparts.
Achieving Energy Independence
Today, the U.S. stands tall as the world's leading petroleum-producing nation. Producing a remarkable 20.3 million barrels a day while consuming 19.9 million barrels, the United States has achieved what Arthur Burns once deemed impossible—energy independence.
Despite this achievement, the price of oil can still surge to painfully high levels. Alongside the elusive dream of peace in the Middle East, the prospect of cheap energy constantly teases us, remaining just out of reach.
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