Forty years ago today, the Organization of Petroleum Exporting Countries (OPEC) announced an embargo against sending oil to the United States out of displeasure for its support of Israel in the Yom Kippur War. A new report by the Institute for Energy Research reminds us all how President Richard Nixon and Congress overreacted and created the first "Energy Crisis" by imposing price controls on fuels. From the IER report:
On October 16, 1973, the Arab members of the Organization of Petroleum Exporting Countries (OPEC ) announced a decision to raise the price of oil by 70 percent a barrel, which was followed by the oil ministers agreeing to an embargo on oil shipped to the United States, a five percent reduction in production from September's levels, and a continuation in production reductions in five percent increments until the organization's economic and political objectives were met.The stated reason for the embargo on the United States was because the U.S. provided military supplies to aid Israel in the Yom Kippur War that Egypt and Syria launched against Israel on October 6, 1973.
While the war ended in the same month that it had started (October 1973), oil prices were raised dramatically to reduce demand to the new, lower level of supply. The market price for oil rose from $3 per barrel to almost $12 per barrel by January 1974. At that time, net imports of petroleum were supplying 35 percent of U.S. petroleum consumption. The embargo, combined with the perverse consequences from oil price controls introduced earlier by Nixon, meant that consumers had to wait for hours in long lines at gas stations, some of which were miles long. President Nixon asked homeowners to turn down their thermostats and for companies to cut back on work hours; and gas stations were asked to hold their sales to a maximum of ten gallons per customer.
The OPEC price hike was a shock, but federal policy made a bad situation worse and helped fuel the catastrophist meme that the world was running out of resources. Remember peak oil? CNN reported back in 2007:
The German-based Energy Watch Group released a report Tuesday saying the world's oil production peaked in 2006 and from now on will drop by around 3 percent a year. It says that by as early as 2030, the global availability of oil will be half of what it was at its peak.
In 1972, The Limits to Growth researchers estimated known global oil reserves at 455 billion barrels. Since then the world has produced very nearly 1 trillion barrels of oil and current known reserves hover around 1.2 trillion barrels, a 40-year supply at current consumption rates.
Now it's "peak everything."