Outside View: Oil crisis lessons learned

MOSCOW, Oct. 25 (UPI) — Oil prices on the world’s commodity markets have topped $90 per barrel. “Black gold” now costs more than it did during the fuel crisis of 1973 (with a correction for inflation) and is just $10 below its 1980 record high.

Analysts say a new record could be set before the end of this year. However, such forecasts do not cause panic in the Western world, where consumers have learned over the past few decades to live with the fact that cheap oil is a thing of the past.
Turkey’s declared intention to fight separatist guerrillas of the Kurdistan Workers’ Party, or PKK, in northern Iraq and a new drop in the value of the U.S. dollar have further increased oil prices on world’s markets. At the New York Mercantile Exchange, for instance, crude oil jumped to $90.07 with the news at the end of last week. Analysts have predicted that before the year’s end the price may settle at $90-$100 per barrel, only to rise further in the year 2010 to $150, which would be a 30 percent increase on the 1980 figure.

Yet the news of crude oil surpassing the psychological price barrier of $90 did not trigger panic in Europe and North America and had little impact on their economies. Consumers in the West realize perfectly well that the latest leap is largely due to market speculation and that price fluctuations are being stoked by conflicts in oil-producing regions such as the Middle East. But the main reason for their calm is, perhaps, that in the 30-odd years since the 1973 oil crisis they have come to terms with the reality of increasingly expensive oil.

In October 1973, with the Arab-Israeli war in full swing, the Organization of Petroleum Exporting Countries led by Saudi Arabia introduced an embargo on oil deliveries to the United States and Western Europe. In the subsequent year the price of crude jumped to $12 a barrel, up from just $3. That shock led to a 15-percent drop in industrial production in Western countries and made inflation surge by as many percentage points in 1974.

European countries learned their lesson quite well, with the oil shock prompting them to work on measures to reduce their energy dependence on Middle Eastern oil. They began buying Soviet natural gas to have their public transport shift to liquefied gas and undertook research in energy-saving technologies and alternative sources of energy.

Over the past few decades people in Western Europe have learned to save energy. They now consume half as much gasoline per capita as do their counterparts across the Atlantic, thanks in part to the wide use of small cars and trams. Energy costs in Europe currently account for an estimated 5 percent of the gross domestic product.

UPI