American Energy: Making Oil Shocks History
Last week marked the 45th anniversary of the Arab oil embargo. The crisis is now a distant memory, but as we confront similar energy challenges near half a century later, it’s worth reflecting on the circumstances that drove the embargo and how U.S. energy production has drastically changed our situation.
On October 19, 1973, long-simmering international tensions erupted into an oil embargo when Arab members of the Organization for Petroleum Exporting Countries (OPEC) banned exports of oil to the U.S. and cut production to raise the cost of oil. Oil prices quadrupled during the crisis, sending shockwaves through the U.S. economy and triggering a series of panicked responses by policymakers. With a limited ability to increase domestic energy production in the short run, the federal government turned to price controls, rationing, and extreme conservation measures that would be inconceivable to the American public today.
While the embargo is widely remembered for hours-long lines at gas stations—at one point during the crisis, AAA reported that 20% of U.S. gas stations had no fuel—its impact on American daily life was far more widespread. It wasn’t just gasoline: About 12% of U.S. electricity was generated from oil at the time, which also caused utility bills to soar. Inflation took off, President Nixon urged citizens to turn down their thermostats, and Congress passed legislation mandating Daylight Savings Time and a nationwide speed limit of 55 miles per hour. The Nixon Administration even proposed emergency legislation that would have banned numerous forms of “unnecessary” lighting, including outdoor Christmas lights during the holiday season. It’s clear our national response to the embargo was shaped from a position of weakness.
The embargo was lifted in March 1974, though not before causing a recession and leaving an imprint on U.S. economic and national security policy. For decades following the embargo, U.S. energy security remained an omnipresent domestic and foreign policy concern, and even during periods of stability there was a sense that our energy fortunes were beyond our control.
In fact, while the tense and often adversarial relations between the U.S. and the world’s major oil-producing nations has waxed and waned over time, they have never really gone away. Today, as in the 1970s, oil markets are on edge, monitoring unpredictable situations in major exporting countries such as Iran and Venezuela.
The difference today is the shale revolution of the last decade. Now, potential supply disruptions no longer stir a national conversation on thermostats and speed limits. Since 2008, U.S. oil production has more than doubled, and this year, we likely become the world’s top oil producer, passing both Saudi Arabia and Russia. U.S. natural gas production has surged almost 50%, and also now leads the world. Abundant gas is making electricity cleaner and more affordable, and enabling a resurgence in manufacturing and the good-paying jobs that come with it. Energy exports are booming—the U.S. is on pace to become a net energy exporter by 2022, significantly improving our balance of trade. A reduced dependence on energy imports has enhanced national security and strengthened U.S. leverage in foreign relations.
Of course, energy access and affordability still matters greatly to families and businesses. Our newfound energy abundance provides a crucial buffer against volatility beyond our shores, and America’s new energy muscle was put to the test in 2015 and 2016, when rising output overseas sent the price for oil plummeting. U.S. oil producers weathered this storm and have become incredibly nimble at adapting to rapidly changing market conditions. Two years later, we’re now producing more oil than we ever have.
America’s long, winding path from energy scarcity to energy abundance did not happen by accident, and will not continue by accident. It is the product of public and private research, technology development, and entrepreneurial risk-taking that took decades to materialize. Moreover, while the energy revolution is just getting started, it is under constant threat from well-funded “Keep It In the Ground” activists that seek to reverse course, and place domestic energy resources under lock and key.
Fortunately, the Trump Administration has fully embraced what it calls “The New Energy Realism”—a recognition that innovation, paired with a favorable tax and regulatory environment, will help America continue the energy revolution in a manner that advances a wide range of domestic and international policy goals. As Energy Secretary Rick Perry likes to say, we actually never had a shortage of energy; only a shortage of imagination and a loss of confidence in the country’s ability to innovate.
While we’ve made great strides in domestic energy production, remembering the lessons of the 1973 oil shock will go a long way to ensuring those shortages never return.
Dan Byers is vice president of policy at the U.S. Chamber’s Global Energy Institute.