Peak Oil News: You call this tough? Think '70s

Monday, May 30, 2005

You call this tough? Think '70s

By Dean Calbreath

At the North Park Service Center in San Diego, Joe Balistrieri hates how much he has had to raise the price of gasoline the past year.

"I feel sorry for the customers," said Balistrieri, 79, who has been selling gas in San Diego for 50 years. "I don't know how some of them cope with these price rises, especially when they have to buy food and rent. This has been the worst I've seen in a long time."

But there have been worse years. In the 1970s, gasoline was rationed so tightly that drivers had to queue up in long lines, and stations had only enough fuel to stay open a few hours a day.

"Everybody suffered back then," said Balistrieri, who worries that the oil market may be heading in a similar direction today.

Although the price of oil has doubled in two years, most economists think the rise has been gradual enough to avoid the kind of shocks that roiled the global economy in the 1970s.

"People are complaining about the price of oil, but we're nowhere near the psychological barrier that we hit in the past, when people suddenly realized there was a crisis," said Tapan Munroe, an economist with the Law and Economics Consulting Group in Moraga.

Nevertheless, the recent price rises, which are tied to long-term trends in population growth and oil field declines, seem fated to have a longer-lasting impact on the world economy than the short-lived shocks of the 1970s did. And the 1970s still stand as an example of what to do – and mostly what not to do – as prices rise.

The 1960s and early 1970s in the United States represented an era of cheap fuel. In early 1973, gasoline was selling for an average of 39 cents a gallon – the equivalent of $1.70 today after adjusting for inflation. U.S. freeways were crowded with such road yachts as the Lincoln Continental and the Ford Galaxy, which gulped down roughly as much gas as today's Hummers and sport utility vehicles. Factories and office buildings ran on cheap electricity provided by oil-burning plants.

That era came to an abrupt end in late 1973. Angry over Western support for Israel in the Yom Kippur War, the Arab-dominated Organization of Petroleum Exporting Countries doubled the price of its exports and imposed an oil embargo on the United States and the Netherlands, Israel's chief allies.

The resulting shortage was so bad in the United States that the government stepped in to ration gas. Drivers with odd-numbered license plates could buy gas only on odd-numbered days. Drivers with even-numbered plates could buy only on even-numbered days.

As oil prices shot up, President Nixon took far-reaching actions to conserve fuel. Among other things, he extended daylight-saving time through the middle of winter to cut down on lighting and heating and imposed a national speed limit of 55 miles an hour to save gasoline.

Though both measures saved substantial amounts of energy, neither was popular. Drivers routinely violated the reduced speed limit, which was repealed in 1995, and parents loudly protested having to send their children to school in the predawn darkness because of the lack of a seasonal clock change.

Most controversially, Nixon imposed price controls on gasoline. Some economists say the price controls, lasting from 1973 to 1979, exacerbated the nationwide shortages because petroleum companies believed they were not making enough money refining crude oil.

A year after Nixon's resignation in 1974, Congress came up with a more effective tool to conserve gasoline: the Corporate Average Fuel Economy standard, or CAFE, which forced automakers to double the fuel efficiency of new vehicles from the average of 13.4 miles per gallon of 1973 to 27.5 mpg by 1985.

When CAFE passed during the Ford administration, a growing number of drivers were already trading their U.S.-built road yachts for cheap, fuel-efficient Japanese imports flooding into the market. Although Detroit lobbied hard against CAFE, the law pushed the American auto industry to meet the Japanese competition head-on.

To President Carter, the issue of energy was so important that 13 days after taking office, he devoted a nationwide address to energy conservation. Clad in a cardigan sweater, he told the nation that he had turned the thermostat on the White House heater down to 68 degrees to save on fuel and suggested that all homeowners do the same.

Two months later, he unveiled an ambitious package of conservation and alternative energy programs. In what now seems like an early warning of today's oil market, Carter warned that the days of cheap oil were numbered and that America was contributing to oil depletion with its fondness for "large and inefficient" automobiles.

"Ours is the most wasteful nation on Earth," Carter said. "We waste more energy than we import. With about the same standard of living, we use twice as much energy per person as do other countries like Germany, Japan and Sweden."

Carter created the Department of Energy, established the national strategic petroleum reserve and launched a conservation program that eventually led to a noticeable decline in U.S. oil consumption.

But global politics overtook his agenda. The 1979 revolution and hostage crisis in Iran and the Iran-Iraq War, which began in 1980, pushed the price of oil to an all-time high of $38.31 that, adjusted for inflation, would be $85.85 per barrel, with gasoline selling $1.38, the current equivalent of nearly $3 per gallon. The price spike threw an already shaky economy into recession, and Carter lost his job.

Even after President Reagan took office, it took six years for gasoline prices to fall to the inflation-adjusted range of $1.50 to $2 per gallon, where it remained largely until prices began to take off last year.

Nowadays, with a barrel of oil hovering above $50, some bearish voices on Wall Street are warning that high oil prices could bring on another bout of stagflation – the stagnant, inflation-ridden economy last seen in the oil-shocked 1970s.

Most economists downplay such worries.

They note that after adjusting for inflation, oil prices are still far below where they were in the late 1970s. And the economy is less dependent on oil than it was then.

Thanks to the decline of the energy-intensive factories, the introduction of Corporate Average Fuel Economy standards and the switch to natural gas, the United States now uses about half as much oil in proportion to the gross domestic product as it did in the early 1970s. And the recent, more gradual price hikes have given consumers time to adapt.

But economist Munroe adds that the lack of a crisis atmosphere carries its own threat because people have not yet felt the need to radically alter their energy consumption.

"We're still happy to buy bigger and bigger Hummers," he said.


Post a Comment

<< Home