Oil Prices Hurt U.S., But Less Than in 1970s
- By H. Josef Hebert
- Mar. 27 2000 00:00
WASHINGTON -- As members of the Organization of the Petroleum Exporting Countries head for Vienna, Austria, to consider Monday raising crude oil production, U.S. oil prices are soaring and OPEC is to blame.
The prospects of $2 per gallon (3.8 liters) gasoline this summer is real. So where's the outrage and crisis command center?
Twenty years ago, then-U.S. President Jimmy Carter, confronted with an oil price run-up, told the nation it faced "the moral equivalent of war." He set the machinery of government to work with price controls and gas rationing that produced blocks-long lines at filling stations.
Today, U.S. Energy Secretary Bill Richardson calls Saudi Arabia - the linchpin of any pricing strategy by the OPEC - America's good friend and ally. He argues that the market should rule and that quiet diplomacy is the answer.
"We must be prudent, not overreact," he tells lawmakers.
The world has indeed changed. Today's oil and gasoline price shocks have little in common with the Arab oil embargo of 1973 and the price upheavals of the Carter years in the late 1970s and into 1981.
"In the '70s, what happened with oil prices was highly charged and triggered by geopolitics and nationalism. It was seen as consumer vs. producer, North vs. South, retribution for decades of exploitation," said Daniel Yergin, chairman of Cambridge Energy Research Associates and author of the "The Prize," a Pulitzer prize-winning history of the oil industry.
"Now the politics and spirit of confrontation has drained out of the oil markets," Yergin said in an interview. "It's much more a business of buying and selling to make profits as opposed to trying to score political shots."
Robert Ebel, an energy and national security expert at the Center for Strategic and International Studies, said even OPEC's most militant factions today "understand they need us just as badly as we need them."
"We give value to their oil," said Ebel.
That's what triggered the latest oil crisis: The price of oil in 1998 had plummeted dangerously low as producers, led by Saudi Arabia, boosted production in anticipation of growing demand from Asia just as the Asian economy took a dive. The resulting oil glut drove prices to less than $10 a barrel and prompted OPEC and other producers such as Mexico and Norway to cut production. Prices quickly tripled.
That contrasts sharply to the 1970s oil crisis, when the 1973 embargo was in Arab retaliation to U.S. support of Israel, and in 1979 when religious revolutionaries in Iran overthrew the shah, cut off its oil spigot and kept 52 Americans hostage for 444 days.
It was a time when many economists and environmentalists feared oil prices of $80 a barrel or more would soon become a permanent part of the economic landscape. Some worried erroneously that the world was running out of oil. And the energy efficiency movement had yet to catch on.
On top of that, economic times were tough - made tougher by the oil price surge that peaked at $39 a barrel in 1981: double-digit interest rates, a 9 percent inflation rate and unemployment approaching 8 percent.
The crisis mentality prompted a series of government actions that most economists now acknowledge made things worse: gas rationing, price controls and a heavy hand of regulation, interfering in the energy markets.
Today, an economic boom has drowned out the grumbling from the gas pumps. In February, Americans went on a buying binge, even as Northeast heating oil prices surged. By March, gas prices averaged $1.57 nationwide, but the stock market continued moving higher.
"Economic times are good. There's not a great sense of crisis mentality. There's a sense of let's not get tied up in knots here," said Paul Portnoy, an economist and president of Resources for the Future, a Washington research center.
While prices may go still higher this summer, almost two-thirds of those asked in a recent CNN-USA Today-Gallup poll said they believe the high prices will be temporary.
More oil is imported today, 56 percent, than in 1973, 35 percent. But less of it is concentrated in the Middle East. More important, say economists, the United States is less dependent on oil today. Once widely used by industry, at power plants and for heating, oil now plays a modest role in non-transportation sectors.
Two decades ago, oil purchases amounted to 8 percent of all the goods and services purchased by Americans, compared with 3 percent today, the Energy Department says.
Even in transportation, where oil still dominates, there have been dramatic changes.
"We're using more gasoline," acknowledged John DeCicco of the American Council for an Energy Efficient Economy. But because of efficiency improvements, it's a lot cheaper in terms of kilometers traveled.
While $2 gasoline may bring sticker shock, DeCicco said, motorists today, even after the latest price surge, are paying 5 cents a kilometer for gasoline. In 1973, they were paying 7.5 cents a kilometer, and in 1979, 10 cents, both figures adjusted for inflation.
In 1970, the average car got 5.6 kilometers per liter said DeCicco. Today, even with the popularity of gas-guzzling sports utility vehicles, the average is 8.1 kilometers per liter.