Surging gasoline prices bring back memories of past energy wars
Gasoline prices were nearing record levels in the United States in February, even before the Russian invasion of Ukraine.
Now, the price at the pump is higher than ever.
Prices have also soared for the heating oil and natural gas that millions rely on to heat their homes in the U.S. and Europe. But in America, the availability of gasoline and the price at the pump are the ultimate modern wartime hostages.
That is why gas stations displaying eye-popping prices this summer and fall will matter more than all the campaign billboards put together in affecting the November midterm elections.
Russian President Vladimir Putin lost his initial gamble on a quick victory in Ukraine. But his subsequent moves carry even greater risks for all concerned.
He is now betting his military can bleed his neighbor country into submission. He is also counting on his own Russian people to endure the economic sanctions imposed by the West longer than citizens of the West can tolerate the soaring energy costs they face as blowback.
Americans have shown resilience in the face of such challenges before. But the fallout from such crises has been devastating, both economically and politically.
For now, Americans are telling pollsters they support sanctions on Russia, including a ban on Russian energy imports to the U.S. — even it means higher prices for gasoline.
That may show resolve, or it may demonstrate what pollsters call "social acceptability bias." After all, who wants to admit their moral objections to Russian atrocities in Ukraine might be so easily overcome by selfish interest?
But where will attitudes be when more people need to go back to work? Or as the summer driving season arrives? Where will we be if oil goes to $150 a barrel or beyond in the weeks ahead, or if gasoline heads for $6 a gallon? These are hard choices for individuals and policymakers alike.
And yet, we have been here before. We have confronted stark challenges posed by hostile foreign actors using oil as a cudgel. We have struggled and even staggered in these moments, and we have survived them. But we have also been changed in the process.
The Arab oil embargo
To this day, the phrase "Arab oil embargo" packs a memory wallop for all who remember the 1970s. Few events in the 20th century mattered more for the remainder of that century, or for the lives we lead in this one.
Until that time, Americans typically assumed their gas came from refineries and wells in the good old USA — or from friendly countries nearby. That had been generally true since the first automobiles appeared in the early 1900s. But cheap oil from the Middle East, produced in some cases for less than $1 a barrel, contributed ever larger shares of the U.S. supply after World War II. The investments of American oil giants in the region were among the most lucrative in history.
And then came a war. Although limited in scope, it swiftly involved the superpowers and portents of nuclear confrontation. And its effects would linger for decades.
In October 1973, the armies of Syria and Egypt attacked Israel on the Yom Kippur holiday, seeking to regain territory lost in the 1967 Six Day War. Initially, Israel seemed in danger of being overrun.
President Richard Nixon intervened, airlifting massive military aid and dispatching U.S. aircraft carriers to the Eastern Mediterranean. The Soviet Union was just as actively arming and urging on the Arab allies. For days the prospect was quite real of a nuclear confrontation with the Soviet Union, a key backer of the Arabs in the region.
As Nixon doubled down on the U.S. commitment to Israel, oil-producing states in the Persian Gulf region rallied to the Arab side and announced an embargo on oil sales to the U.S. and several other countries.
The price of oil delivered in the U.S. shot up from about $3 a barrel before the embargo to nearly $12. Shortages developed and prices at the pump roughly doubled — seemingly overnight.
Gas lines and rationing had not been seen in the U.S. since World War II. And in this case, there had been no Pearl Harbor, no declarations of war and little sense of what the sacrifice was about.
Suddenly every adult in America knew the letters OPEC meant the Organization of Petroleum Exporting Countries. Although some questioned the cost of U.S. loyalty to Israel, most blamed the shadowy "Arab oil sheiks." There were calls for retaliation.
It was an era of increasing uneasiness in the country. The Vietnam War was winding down but the economy was slowing and inflation pressures growing even before the gasoline spike. In that same October, Nixon's attorney general and deputy attorney general resigned rather than fire the special prosecutor investigating the Watergate scandal, which involved Nixon covering up for illegal campaign tactics. The so-called "Saturday Night Massacre" set in motion a chain of events that led Nixon to resign the following year.
But the oil shock would have even greater effects in the long term. As the veteran scholar of energy policy Daniel Yergin has observed, the 1973 oil embargo "remade the international economy."
Millions of Americans, for example, came to an entirely different relationship with such metrics as "average miles per gallon." Millions bought their first four-cylinder automobile, as Japanese cars in particular took on a new appeal. Congress imposed a 55 mile-per-hour speed limit on all four-lane highways.
The long postwar era of cheap gas, interstate highway construction and ever-larger and more-powerful passenger vehicles seemed to be at an end.
Iran creates a second shock
As the 1970s wore on, high oil prices contributed to more inflation and an unfamiliar sense of energy insecurity. Then in 1979, events in the Persian Gulf region again triggered a jarring and disruptive crisis when revolution toppled the government in Iran, which had been one of the top five oil-producing countries.
Islamic clerics and their followers rebelled against the modernist leadership of Shah Reza Pahlavi in 1979, forcing him from power. Oil production dropped, and while worldwide supply only fell by about 5%, the oil markets reacted in panic. Shortages developed and competition in the spot market drove the price of crude barrels up through the $20 and $30 ranges to break $40 as the 1970s came to a close. (Adjusted for inflation, that would be equivalent to nearly $140 today.)
The shortages also led to long gas lines and a sense of national frustration. In his memoir, President Jimmy Carter's domestic policy adviser Stuart Eizenstat recalled waiting half an hour at a station near his suburban Washington home to "get enough gas to travel to the White House to try to deal with the crisis — and then not very well."
Carter tried to address the mood in an Oval Office speech that was widely panned as a "malaise" speech (even though he never used the word). Matters only got worse when Iran went to war with Iraq in 1980, depressing oil output in that country as well.
The second oil shock not only spurred inflation but pushed the global economy into recession as well. Needless to say, the combination contributed substantially to Carter's plunge in the polls and his landslide loss to Ronald Reagan in the 1980 election.
Big adjustments bring big changes
The 1980s and 1990s brought a welcome hiatus from energy crises and oil shocks. A combination of factors even produced a surplus in oil markets, as a global recession depressed demand and price-conscious conservation began to matter.
These years also showed what higher crude prices could do for sources of supply outside the Middle East. More oil from the North Sea, Alaska and Siberia came on line (in the 1980s the Soviet Union became the world's largest producer). Increased output also came from the Gulf of Mexico and smaller non-OPEC countries such as Brazil and India. In the U.S., Carter had set a date in the future for lifting price controls on all petroleum products. Replacing him, Reagan lifted the controls immediately.
For all these reasons, non-OPEC countries were outproducing the OPEC countries by 1981 and efforts by OPEC to maintain high prices failed. Later in the decade, differences over strategy divided the group, which has since had difficulties maintaining a solid front.
All this led to an oil price collapse in 1986 that was a significant boon to the economy of that time and the popularity of Reagan. And the above aided the election of his vice president, Texas oil man George H.W. Bush, as his successor.
Oil and gas prices did spike again in Bush's term when Iraq invaded its oil-rich neighbor, Kuwait, in 1990. But other producers stepped up, and the U.S. led a military operation in that drove the Iraqis out. So the price effects were relatively minimal and short-lived (as were economic effects of oil well fires that burned for most of a year).
Global output continued to push prices down in the early 1990s. In inflation-adjusted dollars, gasoline at points during the decade was cheaper than it had been since the federal government started keeping track in 1929.
That set of circumstances, combined with the personal computer boom, gave rise to a frothy stock market and an era of economic confidence.
Two decades going mostly higher
But that era did not last. The price of gas leaped back to $1.50 in 2000 as the global economy was strengthening and OPEC was having more success at controlling production.
Curiously, the terror attacks of Sept. 11, 2001, did not have an appreciable effect on oil or gas prices, which averaged slightly less that year than in 2000. But a period of rising prices was at hand.
The rise continued as the U.S. invaded and occupied the oil-producing nation of Iraq. That war, which came to dominate the presidency of George W. Bush, saw the average price of gasoline in the U.S. rise back above $1.50 in its first year (2003) and above $2 in 2005. Prices kept rising ahead of the 2006 midterm elections and Bush's Republicans' lost their majorities in the House and Senate for the first time in a dozen years. In the year Bush left office (2008) the average was $3.27 and the peak in June was $4.11 (adjusting for inflation, that would be over $5 a gallon today).
There were many factors affecting the elections in the 2000s, to be sure. But the rising cost of energy was felt in each, particularly as support for the Iraq War waned. Bush was reelected in 2004, although by the second-smallest Electoral College margin of any reelected president. But his Republican Party could not hold the White House four years later against the challenge of Democrat Barack Obama.
Thereafter, however, the global recession brought on by the collapse of mortgage-backed securities and other investment devices in late 2008 brought the price of oil crashing down again. In the depths of that recession, gas at the pump fell below $2 again and averaged just $2.35 for all of 2009.
Prices recovered along with the world economy, nearing $4 per gallon of gas in the U.S. in spring 2012 (adjusted for inflation, that would be higher than the price of gas today). Given that some elements of the economy remained sluggish, it was surprising to many that Obama was able to win a second term with unemployment higher than any other reelected president.
But in Obama's second term, world conditions changed again and substantial increases in output brought prices down rapidly. By the start of 2016 the price of gas was just half what it had been at its recent peak. The price was back above $2 by Election Day that year, but still low enough to have been a positive factor had Obama been eligible to seek a third term.
Gas prices bounced around around in the $2 range in the first year of President Donald Trump, but when COVID hit and global economic activity contracted sharply, crude prices collapsed and briefly went negative. Gasoline prices bottomed at about $2 but soon recovered.
They have continued to climb, reaching the mid-$3 range even before Russia's move into Ukraine. Although Russia has recently been the third-largest supplier of oil to the U.S. (after Canada and Mexico), it has contributed less than 10% of total U.S. oil imports.
But cutting back on Russia's ability to supply the overall global market will make everyone else's oil more expensive for some time to come.
Will the world market — and American sensibilities — prove as resilient as they have in the past?
The answer will largely determine the direction of energy politics and international law in the years ahead.
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