Chapter 30: Bidding for our Life

The embargo and cutbacks by OPEC and the Arabs continued and caused more havoc. American gas prices rose by 40%, and suddenly the age of oil shortage was leading to lost economic growth, recession, and inflation, and the US was on the defensive and being humiliated by a few small nations. The effect of the embargo on the psyche of the US, Western Europe, and Japan was dramatic. Up until October 1973, the US public did not even know the US imported oil. The most visible symbol of the embargo in the US was the gas lines, as US motorists, who were used to driving until their gas gauge read “empty,” now filled the tank constantly, afraid that oil would run out. This created long lines and up to TWO HOUR waits at gas stations. Ironically, drivers waiting in long lines with their engines running and tempers rising seemed to burn even more gas than they were able to buy. Of course, panic buying meant extra demand in the market and higher prices!

The public blamed the oil companies and Nixon for the embargo, shortages, and price hikes. Misinformation, mistrust, confusion, and fear were the order of the day. Congress was engrossed in Watergate, and any presidential energy action lost out in news coverage to Watergate. Nixon tried a national conservation movement to save energy and we saw growing interest in using oil revenues to invest in new technologies and energy sources to reduce the risk of dependency on others for oil.

With the global agitation, anger, suspicion and suffering, the issue was how the available oil was going to be distributed/rationed/allocated. The Arabs masterfully managed to split and put a wedge between the industrial countries. Japan, without any local energy sources, was the most vulnerable, and interestingly, Britain was placed in the “friendly nations” category. OPEC was able to cut production and maintain a profit due to the high prices. Thus, they could sell less and earn more!

At the start of the embargo, the European allies, led by France, distanced themselves from the US, as they thought the US was too confrontational. The US, on the other hand, thought Europe was too soft on OPEC. Thus, the embargo divided the consuming countries based on the Middle East labels placed on each country (i.e., friendly - supported Arab states and got a lot of oil; neutral - did not support either side and got less oil; unfriendly - supported Israel and the US and got no oil).

The companies were caught in the middle. For example, how would it look to see an American company implementing an embargo against the US? The companies decided to use “equal suffering” and “equal misery”- production cutbacks would be applied equally among all countries, with Arab oil going to Arab friendly countries and non-Arab oil going to the US and other countries under the embargo.

There are many lessons learned from this period which seem lost on our current society. We have again let energy independence slide away and have become dependent on others for our energy security. We have also again learned the risks and impacts of fragile supply chains and how quickly even the perception of a problem can trigger panic, which in turn exacerbates the problem.