What Did the 1973 Oil Embargo Teach Us?
Forty years ago this month, Syria and Egypt launched a Yom Kippur surprise attack on Israel to regain land and prestige lost in the 1967 Six-Day War. Israeli forces were nearing Damascus and Cairo when a ceasefire took hold. But as the Soviet Union resupplied its Arab clients and President Nixon resupplied Israel, Arab members of the OPEC oil cartel, led by Saudi Arabia, announced a five percent monthly cut in oil output, then embargoed oil exports to the U.S. and later others. OPEC provided 35 percent of America’s oil at the time.
Prices soared and deliveries faltered. “No gas today” signs spread. People waited in line for gasoline, risking scuffles and occasional gunshots. America had lost her energy innocence.
Relaxed regulations and massive subsidies tried to expand fossil, unconventional fossil, and nuclear energy. (In 1975 oil fueled 15 percent of U.S. electricity vs. less than one percent today.) Most such efforts proved far too costly, but President Carter’s shift toward renewables and especially energy efficiency was strikingly successful.
On his watch, President Ford’s 1975 auto standards took effect in 1978, raising new domestic cars’ efficiency 7.6 mpg during 1977–85. They drove one percent fewer miles on 20 percent fewer gallons, and became lighter, cleaner, safer, but scarcely smaller and no less peppy, saving fuel even when 55-mph top speed limits were abandoned 13 years later. New federal and state policies also made buildings and factories more frugal. Appliance efficiency standards passed Congress without a single nay vote.
The results were stunning. During 1977–85, the U.S. economy grew 27 percent, oil use fell 17 percent, oil imports fell 50 percent, and imports from the Persian Gulf fell 87 percent; they’d have reached zero in 1986 had President Reagan not reversed the policy. Oil burned per dollar of GDP fell by 35 percent in eight years, or an average of 5.2 percent per year—enough to displace a Persian Gulf’s worth of net imports every two and a half years.
OPEC’s oil sword was shattered in a dozen years as customers saved oil faster than OPEC could conveniently sell less oil. It sales plummeted 48 percent, breaking its pricing power for a decade. Then in 1985–86, as massive new energy supplies belatedly arrived to meet needs efficiency had already filled, energy gluts crashed prices. Policymakers, instead of finishing the job, hit the snooze button for a decade.
By the 1991 Gulf War, we put our kids in 0.56-mpg tanks because we hadn’t put them in 32-mpg cars (enough to displace Persian Gulf oil). Yet oil imports continued to soar, reaching 60 percent of oil use in 2005 and returning to 1973-level dependence only this year. Thus today, America pays $2 billion a day for oil, plus $4 billion a day for its hidden economic and military costs.
Four times since 1980, U.S. forces have intervened in the Persian Gulf to protect not Israel but oil. The Gulf hasn’t become more stable. Readiness for such interventions costs a half-trillion dollars per year—about ten times what we pay for oil from the Gulf, and rivaling total defense expenditures at the height of the Cold War. And burning oil emits two-fifths of fossil carbon, so abundant oil only speeds dangerous climate change that destabilizes the world and multiplies security threats.
Yet practical, profitable solutions are at hand. Producing a dollar of GDP now uses less than half the energy and one-third the oil it took in 1973. Last year, wind and solar power, now cheaper than gas-fired power in favorable sites, added half of new U.S. generating capacity, and making a dollar of GDP took 3.4 percent less electricity than a year earlier.
That’s just the start. By 2050, the U.S. could triple its energy efficiency, switch supplies from one-tenth to three-fourths renewable, and run a 158-percent-bigger economy with no oil, coal, or nuclear energy and one-third less natural gas. This could cost $5 trillion less than business-as-usual, emit 82–86 percent less fossil carbon, need no new inventions nor Acts of Congress, and be led by business for profit. The 2011 book Reinventing Fire by Rocky Mountain Institute (RMI) details how.
America’s two-ton steel autos use nearly half our nation’s oil. In the past quarter-century, they gained weight twice as fast as we did, yet their weight causes two-thirds of the energy needed to move them. Moreover, each unit of energy saved at the wheels saves six more units that needn’t be lost getting that energy to the wheels, saving seven units of fuel in the tank—huge leverage.
Making cars 2–3 times lighter with today’s ultralight but ultrastrong materials can make them safer, sportier, buildable more simply with four-fifths less capital investment, affordable to electrify (because they need 2–3 times fewer costly batteries or fuel cells), and more profitable for automakers and dealers. The first such carbon-fiber electric cars have entered production at VW (a 235-mpg two-seat plug-in hybrid) and BMW (a ~110-mpg battery-electric 4-seater). Other automakers, including Audi and Toyota, have shown equally impressive concept vehicles. And such electrified autos’ batteries add distributed storage to the grid, helping integrate varying solar and windpower that could get electricity off coal.
Such 125-to-240-mpg-equivalent autos, 2–4 times today’s best standards, can run on any mix of electricity, hydrogen, and advanced biofuels needing no cropland; superefficient trucks and planes, on the latter two (or trucks on natural gas). Thus a far more mobile U.S. economy could need no oil. Global competition can spread these technologies, not forced by policy but demanded by customers.
Displacing or saving each barrel for $25 rather than buying it for over $100 would save the U.S. $4 trillion in net present value. That’s $12 trillion including our curable oil addiction’s hidden economic and military costs—plus any damage to climate, environment, health, global development and stability, or our nation’s independence and reputation.
That’s why my RMI colleagues have assembled a supply chain to scale Detroit’s production and adoption of carbon-fiber auto parts and developed technology to make them at automotive cost and speed. It’s why RMI’s Electricity Innovation Lab convenes industry leaders to devise the next electricity industry, and why we’re cutting solar power’s installation cost, simplifying its financing, and helping utilities and customers pay each other fairly for the services they exchange. It’s why our RetroFit program is helping real estate portfolio owners triple or quadruple energy productivity. (U.S. buildings’ energy use costs more than Medicare, but their energy efficiency opportunities offer $1.4 trillion net savings with a juicy 33 percent internal rate of return.) It’s why we’ve redesigned over $40 billion worth of industrial plants for radical energy efficiency at juicy profits.
This hard work’s growing success is exhilarating. And we’d be doing it even if the 1973 oil embargo hadn’t happened, because the energy system’s other existential threats, from climate change (a known threat even in the late 1960s) to nuclear proliferation, compel the same actions. But the oil embargo did concentrate the mind wonderfully. Many smart people rose to the challenge. Their efforts are making oil uncompetitive even at low prices even before it becomes unavailable even at high prices.
The rotted residue of primeval swamp goo—a cubic mile of oil costing $3.5 trillion that the world burns each year, plus three cubic miles of coal and gas—is becoming no longer economic. Fracked oil and gas, Canadian tar sands, Saudi oil—none can beat modern efficiency and renewables on direct cost, price stability, or impacts. Now-worthless old energy studies long claimed we’re fated to burn oil forever. We’re not, and we won’t. The end of the conflict-creating, climate-threatening Oil Age is coming clearly into view, and not a moment too soon.
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