Peak Oil Denial: Oil Embargo Nonsense

At the risk of starting a cat fight where truth may too quickly become a casualty, why don’t we more forcefully challenge those who deny peak oil (and global warming) and who do so for reasons that generally ignore reality in favor of narrowly-defined interests? Those motivations will ultimately do nothing but promote more eventual harm by denying the truths to those who clearly need them the most….
Of course, we run the risk of getting bogged down in he said/she-said arguments that quickly devolve into the lowest forms of ‘debate’, but why let those types of offerings go unchallenged? They feed on themselves, and it is tiresome and time-consuming to have to rebut all the nonsense. But if we don’t, uninformed readers and listeners have no reason to at least consider the possibility that there may indeed be other facts out there that should at least be examined in order to make informed assessments, rather than accepting the words of the few. More information is rarely a bad thing, and giving everyone the opportunity to examine the facts and engage in rational discourse as a means of seeking common ground makes for a healthier and more productive society.

That’s from a post I wrote three years ago, and my attitude hasn’t wavered. The constant flow of articles and opinions give me yet more opportunities to bat down the nonsense passing as advice and learned observations about the world of energy supply.

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BIG BAD GOVERNMENT

In an article discussing the 1973-1974 Arab oil embargo and its ripple effects, one of the oil industry’s go-to guys, Pulitzer Prize-winner Daniel Yergin, said this:

A lasting lesson of the crisis years is the power of markets and their ability to adjust to disruptions, if government allows them to. The iconic images of the 1970s—gas lines and angry motorists—are trotted out whenever some new disruption happens. Yet those gas lines weren’t the result of markets. They were the largely self-inflicted result of government interference in markets with price controls and supply allocation. [1]

It’s an admittedly nice quote to whip big government opponents into a frenzy. The “if government allows them to” jab was surely more music to the ears of those whose primary inclination is to make sure the oil industry is running full speed ahead, consequences to the rest of us be damned. “Government interference” and its cousins are of course a standard in the right-wing “key words to use all the time” playbook. Just pull it out, toss it into a statement, and the work is done for the day!

(Did I mention that the oil embargo happened during the Richard Nixon Administration? If memory serves, he was a Republican. Gasp!)

TOSSING IN A FACT OR TWO

From an online “On This [October 17] Day In History” article:

The Organization of the Petroleum Exporting Countries (OPEC) implements what it calls ‘oil diplomacy’ on this day in 1973: It prohibits any nation that had supported Israel in its “Yom Kippur War” with Egypt, Syria and Jordan from buying any of the oil it sells. The ensuing energy crisis marked the end of the era of cheap gasoline and caused the share value of the New York  Stock Exchange to drop by $97 billion. This, in turn, ushered in one of the worst recessions the United States had ever seen.
In the middle of 1973, even before the OPEC embargo, an American oil crisis was on the horizon: Domestic reserves were low (about 52 billion barrels, a 10-year supply); the United States was importing about 27 percent of the crude petroleum it needed every year; and gasoline prices were rising. The 1973 war with Israel made things even worse. OPEC announced that it would punish Israel’s allies by implementing production cuts of 5 percent a month until that nation withdrew from the occupied territories and restored the rights of the Palestinians. It also declared that the true ‘enemies’ of the Arab cause (in practice, this turned out to mean the United States and the Netherlands) would be subject to an indefinite ‘total embargo.’ Traditionally, per-barrel prices had been set by the oil companies themselves, but in December, OPEC announced that from then on, its members would set their own prices on the petroleum they exported. As a result, the price of a barrel of oil went up to $11.65, 130 percent higher than it had been in October and 387 percent higher than it had been the year before.
Domestic oil prices increased too, but shortages persisted. People waited for hours in long lines at gas stations—at some New Jersey pumps, lines were four miles long!–and by the time the embargo ended in March 1974, the average retail price of gas had climbed to 84 cents per gallon from 38 cents per gallon. (links in original) [2]

Those of who were driving back then have many painful memories of waiting in very, very long lines to get gas. Quite a shock to all of us!

From one of the oil industry’s very own, we have this slightly different perspective on the 1970s oil embargo/long gas lines mess, without a single mention of “government interference.” Imagine!

The months preceding the 1973 embargo witnessed a marathon of negotiations over prices, taxes, and shares between governments of the oil-producing countries and the international oil companies (IOCs), which held long-term concessions. The pressure on oil prices started building up a few days before the embargo, when negotiations between the host countries and IOCs broke off. The Persian Gulf states, including Iran, reacted by unilaterally increasing the posted price by 70% on Oct. 16, 1973. The following day, members of the Organization of Arab Oil Exporting Countries (OAPEC), less Iraq, decided to use oil as a political weapon by cutting production without imposing any embargo. Some countries, such as Kuwait and the UAE, announced embargoes on oil exports to the US on Oct. 18. Saudi Arabia rejected calls to impose an embargo at first, but it imposed one on Oct. 19 after the Nixon administration of president Richard M. Nixon ignored warnings not to be biased toward Israel.
After the start of the October war, Kuwait called on OAPEC to meet in Kuwait City on Oct. 16 to discuss the use of oil to support the war efforts of Egypt and Syria. All countries except Iraq agreed to cut production by 5% from September levels. They would cut an additional 5% from the previous months production every month until Arab demands were met or until the economy of the individual country did not permit further cuts. They rejected calls for a complete halt in production and the imposition of embargoes on countries that supported Israel….
OAPEC members, less Iraq, decided to use the production cut to pressure countries that supported Israel to change their policy toward the Middle East. On Oct. 17 these countries recommended that they ‘subject the United States to the most severe cut in proportion to the amounts of crude oil and products it imports from every exporting country….’
Within a few days, Arab countries cut production between 5% and 10% and imposed a total embargo on oil shipments to the US. Saudi Arabia chose to cut production by 10% instead of the 5% that it agreed to a few days earlier….
The embargo led to a 30% decrease in the production of oil in Saudi Arabia and Kuwait. Both countries treated their exports to the US and Holland as extra cuts above the original cuts.  (links in original) [3]

Another of Mr. Yergin’s statements in that above-referenced article doesn’t have quite that same charm and relevance when that reality gets added into the mix, but it is a solid piece of Happy Talk:

The lesson is that markets and price signals can work very efficiently, and surprisingly swiftly, even in crises, if they are allowed to.

Perhaps adding a fact or two every now and then—at the risk of once again ruining a perfectly nice fact-free, one-sided narrative—might help avoid a repeat of those ugly experiences somewhere down the road….

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