Is Today's Energy Crisis Worse Than the Oil Crisis of the 1970s?

In 1973, after Israel's Yom Kippur war with a coalition of Arab states, Middle Eastern oil producers imposed an embargo on oil supplies to the United States as retaliation for Washington's backing for Israel. What ensued was an unprecedented energy catastrophe. Daniel Yergin believes that the present energy situation may be worse.

During the 1970s oil crisis, the price of oil quadrupled within three months of the embargo's imposition. At the time, the US believed that losing market share would be financially detrimental to producing states. However, those companies compensated for their market share loss by much higher pricing.

Consumers in the United States, on the other hand, faced a heavy hit in the form of gasoline shortages and urgent energy conservation measures, since the country's oil consumption had been expanding at a breakneck pace for decades due to cheap Middle Eastern oil.

Interestingly, despite the fact that the embargo excluded Europe, the continent suffered an even greater hit as a result of the way prices surged in response to the Arab manufacturers' decision. To preserve petroleum, fuel restriction was implemented and nationwide speed limits were implemented.

The last policy, concerning speed limitations, may sound familiar to those who follow the International Energy Agency's energy conservation recommendations: it is one of the ten measures the IEA identified as required to wean the EU from Russian fossil fuels.

The fact that today's scarcity affects all fossil fuels, not just oil, is one of the reasons this crisis might be worse than the one in the 1970s, according to Yergin, who made his views in a Bloomberg interview this week.

"I believe this might be worse," the analyst told Bloomberg. "It includes oil, natural gas, and coal, as well as two nuclear-weapons states."

Leaving aside the reasonable concern that the latter portion of the sentence would elicit in anybody living in Europe or North America, the first is instructive. Europe imports about half of its coal and natural gas and approximately a quarter of its crude oil from Russia. And the EU has recently voted to impose an embargo on Russian coal imports as a means of punishing Russia for its activities in Ukraine.

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Here is what transpired after the announcement of the ban, which, by the way, has not yet been authorized. Indonesia increased its own coal prices by 42%, Australian coal miners reported limited capacity to replace Russian coal, and Asian coal prices jumped on rumors that European customers were on the lookout for replacement coal.

What is occurring in coal is quite similar to what will occur in oil and gas. As Yergin emphasized in his Bloomberg interview, the global natural gas market is already highly constrained, and there is no ready substitute for Russian gas if it ceases to flow. This is despite attempts by US LNG companies to increase exports.

Another energy expert, David Blackmon, went farther this week on the Energy Transition podcast, stating that the US lacked the physical capacity to meet President Biden's pledge to the EU to export an extra 15 billion cubic meters of LNG. Blackmon cited the time required to increase gas output and extend liquefaction capacity, as well as the LNG ship fleet's restricted capacity and current LNG export obligations to other clients.

In this climate of constrained fossil fuel supply and demand that seems to greatly outstrip supply, things are already precarious even without oil or gas embargoes, which a senior EU official said may become "essential" at some time. Across the continent, the cost of living is increasing, and governments are battling to contain it. If the EU pursues an embargo, the consequences might be catastrophic, as practically every expert has warned for weeks.