by Paul Wiseman and Yuri Kageyama
The world economy is experiencing a disorienting flashback to the 1970s.
Oil prices are once again surging in the wake of war in the Middle East, driving up the cost of gasoline, diesel and jet fuel and threatening a return to stagflation – the toxic mix of higher prices and slower growth that made economic life so miserable a half century ago.
But the U.S. and world economies are less vulnerable now than they were when Saudi Arabia and other Middle Eastern petroleum producers withheld oil supplies to punish countries that supported Israel in the 1973 Yom Kippur War.
In response to that shock – and another triggered six years later by the Iranian revolution — countries embarked on a new course to increase their energy efficiency, reduce their dependence on Middle Eastern oil, stockpile fuel against future threats, and find and develop alternative sources of energy…
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Cushioning the blow
Changes the U.S. and other countries made over the past five decades have limited the economic fallout from the war. In 1973, oil accounted for almost half — 46% — of world energy supplies. By 2023, oil’s share had fallen to 30%, according to the International Energy Agency.
The world still uses more oil than ever: Consumption topped 100 million barrels a day last year, up from fewer than 60 million barrels a day in 1973. But a much bigger share of global energy is coming from other sources — such as natural gas, nuclear, solar — compared with five decades ago.
The United States, in particular, has weaned itself away from dependence on foreign oil.
When the ’73 oil shock hit, America’s domestic energy production was in decline and its reliance on oil imports was growing alarmingly. But the rise of fracking — pumping high-pressure water deep underground to extract previously hard-to-get oil or gas from rock – rejuvenated U.S. energy production in the 21st century. By 2019, America had become a net petroleum exporter.
“The U.S. economy is much better positioned than it was in the 1970s,” when it was “particularly vulnerable to an oil price shock,” said Sam Ori, executive director of the University of Chicago’s Energy Policy Institute.
In the early ‘70s, for example, the United States got about 20% of its electricity from oil, Ori said. But a law enacted in 1978 prohibited the use of petroleum in power plants. Now the United States gets no electricity from oil — aside from a few generators in, say, the far reaches of Alaska…
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Trump undoes efforts to reduce oil dependence
While much has changed, the University of Chicago’s Ori cautions: “Oil is still king, the No. 1 fuel in the U.S. economy.’’ Cars, planes, trucks and ships get about 90% of their delivered energy from petroleum. “The lifeblood of the economy – the transportation sector —is still overwhelmingly reliant on petroleum fuel, the price of which is set in a global market,’’ Ori said, “and a disruption anywhere affects the price everywhere.’’
He also notes that President Donald Trump is undoing many of the policies meant to reduce America’s dependence on petroleum and to encourage the use of electric vehicles.
Trump’s sweeping tax bill last year ended consumer credits of up to $7,500 for EV purchases. He has announced a proposal to weaken U.S. fuel economy standards and repealed fines on automakers that don’t meet those standards.
“You take all that together, and the fact is, the U.S. is going in the opposite direction of making big changes to further insulate the economy from oil shocks and oil price volatility,’’ Ori said.