Lessons From the Emerging Crisis : Potent oil weapons: conservation and efficiency
Oil prices, up more than 40% since Iraq invaded Kuwait, now nudge $29 a barrel. Where might it end? The 1973-74 oil shock quadrupled prices, to $13. Iran’s 1979 revolution and production cutoff saw them triple again, to nearly $39. Both price run-ups cut deeply into world economic output and thrust inflation rates into double digits. Each time, the world was sent spinning into recession.
You’ve probably noticed that OPEC isn’t eager to approve production boosts by its members to make up for oil no longer coming from Iraq and Kuwait. Saudi Arabia, OPEC’s biggest producer, indicates that it will boost its daily output by 2 million barrels anyway, and suggests that Venezuela and the United Arab Emirates could together add another million barrels more without strain.
These are impressive numbers; by themselves they promise to replace 70% of the oil lost by the embargo on Iraq and Kuwait. The rest could easily come from stocks in the industrial countries. There is, then, no theoretical reason to fear disruptive shortages, and so there’s no reason for the oil markets to get over-excited, right? Wrong. The markets have been anything but cool in this crisis.
Panicky markets could start the vicious cycle--lost output, inflation and recession--all over again. But prudent decision-making and actions--by individuals, companies and government--could help restrain oil demand and so work against wild price rises.
President Bush had no problem yesterday identifying what’s most needed. Americans, he said, have to use self-restraint in energy consumption. If that’s less than a ringing call to action, it at least puts the emphasis where it’s needed. More than 75% of the oil consumed in the United States--about half of which is now imported--is used in transportation (most of that in personal vehicles), in the home and to generate electricity. Clearly, ordinary people can do a lot, with little pain, to put a big dent in oil demand.
The key word is conservation, and the key concept is efficiency. Since the first oil shock 17 years ago, the country has become considerably more energy-efficient in transportation, building insulation and industrial processes. But there’s much more to do, and it can be done without lowering living standards. The United States still uses twice as much energy as Japan to produce each dollar of real gross national product, and 50% more than Britain. What has to be done to close the gap?
For as far ahead as anyone can see, the United States and other industrial countries will have to rely on the Persian Gulf for a growing percentage of their oil supplies. That area’s continuing instability is self-evident. No less clear is the imperative to cut oil dependence on the gulf to the lowest level possible. The quickest--and cheapest--way to reduce total energy demand is by making each unit of energy do more work. Japan, Germany, Sweden, Britain and other countries have found a lot of ways to do that in manufacturing areas. The United States has some catching up to do. The time to start is now.
