October 25, 2003


Thirty Years of Petro-Politics (Daniel Yergin, October 17, 2003, Washington Post)

The 1973 oil embargo was the unsheathing of "the Arab oil weapon." [...]

The whole international order seemed to have been transformed. Now politics was also about economics. On the day the embargo was announced, President Nixon told his advisers, "No one is more keenly aware of the stakes: oil and our strategic position." The vast flood of "petro-dollars" to the exporters turned "petro-power" into a central fact of international politics. [...]

Within less than a decade, the "permanent shortage" turned into a glut, triggering a price collapse that, among other things, hastened the end of the Soviet Union, which had been depending on its oil exports as the lifeline to keep its economy alive.

There are many lessons here. Nations that had taken their energy supplies for granted suddenly realized how important reliable, reasonably priced supplies were to their well-being. Oil became high politics, and energy became part of public policy.

One of the less obvious but lasting lessons is that markets work, even in circumstances as dramatic as these were.

Strangely missing is one of the--maybe the--key lessons of the use of oil as a weapon: even when it was wreaking economic havoc it failed utterly as a political weapon. American support for Israel has never wavered appreciably and the petro-nations never became a significant force in world affairs. Brandishing the threat of oil embargoes secured them no influence. You can't beat an idea--liberal democracy--with a commodity, no matter how much folks want it.

Posted by Orrin Judd at October 25, 2003 4:06 PM

In a related way, the US' embargo of Cuba has utterly failed, and should be stopped.
Let's go to Plan B: Corrupt them with capitalism. Hopefully, the result will be better than either Communism under Fidel, or autocracy under Batiste.

Congress is even now working on legislation to allow US citizens to travel directly to Cuba, although the President, dependent on Florida's electoral votes, has threatened to veto.

Posted by: Michael Herdegen at October 25, 2003 4:50 PM

Actually it worked well as a political weapon . . . against the USSR! After Reagan convinced the Saudis to open the taps, the resulting oil price drop helped bankrupt the Soviets. See Victory: The Reagan Administration's Secret Strategy That Hastened the Collapse of the Soviet Union by Peter Schweizer.

Posted by: PapayaSF at October 25, 2003 4:53 PM

The oil weapon sure weakened Europe's support of Israel. Destroyed it, in fact.

The US was less vulnerable because it had more fuel options.

Posted by: Harry Eagar at October 25, 2003 8:05 PM

Reducing our dependance on foreign oil is our greatest challenge. Tax gasoline!

Posted by: genecis at October 25, 2003 9:30 PM

But wasn't European support of Israel pretty much diminished by 1970? One could argue that the embargo was the last nail, but much had changed prior to the autumn of 1973.

In hindsight, the biggest reason the oil embargo was perceived as effective was the growing weakness of Richard Nixon. A strong President, backed by Congress and a majority of the people, would have weathered late 1973 in a quite different fashion than Nixon did. He probably did the best he could, given his troubles, but the stage was set for the even bigger oil shocks in 1979.

Posted by: jim hamlen at October 25, 2003 9:34 PM

The multiplicity of oil suppliers means they fall prey to the prisoners dilemna.

Which makes assertions of our vulnerability to supply disruption overblown.

As someone else here wisely noted recently, if increased fuel taxes are offset by decreasing taxes elsewhere, the net effect on driving will be zero. And if not, the result will damage our economy more permanently than any putative oil embargo.

The alternative is to let the market economy do its thing. As Prince Faisal noted in a particularly perceptive moment 25 years ago, the Stone Age didn't end because men ran out of stones.

Posted by: Jeff Guinn at October 25, 2003 9:44 PM

Adding a tax to gasoline and the market economy will produce the desired effect. Reduced consumption.

Posted by: genecis at October 25, 2003 9:58 PM


Only if the overall level of taxation increases. Europeans consume less fuel because of high fuel taxes within the realm of much higher taxes overall. If we maintain our overall level of taxation, people will still be able to maintain their driving habits and have the same after tax/after fuel income.

The Earth won't run out of oil overnight. Over time, decrease supply will increase cost to the point where other power sources--fuel cells, hydrogen, whatever-- will become viable.

What is the matter with letting the market do its work?

Posted by: Jeff Guinn at October 26, 2003 3:23 AM


Markets are wonderful tools, but they don't accurately price secondary and tertiary effects.

How many soldier's lives have been lost, pacifying the Middle East ?
How many civilians have died in Israel, killed by the effects of a combination of: US support for Israel, US need for Israel to exist where it does, Arab anger over corrupt and incompetent gov'ts, and petro-dollars ?
How many millions have died early, some far early, due to pollution from automobiles ?

Our oil markets cost in exactly ZERO for these losses, real though they may be. We might not change much, if they were, but at least we'd know EXACTLY when it starts costing more to be using petroleum, especially imported petroleum.

Further, although society can put an accounting price on any generic human's life, the economic losses far exceed it.

Morally, a petroleum based economy is extremely expensive. If we consider ONLY the Iraq-US conflict, '90 to present, and count the deaths: Iraqis killing Kuwaitis; Iraqis killing Americans and Allies, twice; Americans killing Iraqis, twice; And deaths due to UN sanctions, designed to prevent another Desert Storm... We're up to 300,000, all in a struggle over oil.

Not provoked by the US, by any means, but fueled by the US' insatiable demand for sweet, sweet oil.

'Course, the counter argument is, if we assign a value of $5,000,000 to each life lost, and throw in the cost of fighting two wars, plus a decade of containment, it only adds a dime to each gallon of fuel, gasoline or diesel, sold in the US since '91.

But I hate to be that cold.

Posted by: Michael Herdegen at October 26, 2003 5:16 AM


But don't you think that the 'market' for terror and pseudo-war is working already? The Palestinians are the proxy cannon fodder, while the rest of the Arab world flails around (but would never dare start killing Israelis). The US gets more or less involved, depending upon the circumstances and the sensitivity of leadership to pressure (or to hunger, as in Clinton's case).

The deaths of various soldiers and Middle Eastern civilians are costs paid to keep the energy river flowing. Without oil, all the people there could kill each other indefinitely, and we wouldn't care. While it is expensive, the alternatives (an American colony, true energy independence, drilling in the Arctic or on the Florida coast) have been deemed unworthy.

Posted by: jim hamlen at October 26, 2003 8:32 AM

Temporarily unworthy.

We can start at the other end and ask, how much of the world's oil and gas are we going to burn, and the answer is, all of it.

It is not so obvious that if we used those State
Fair carburetors that burn water, we would have zero costs relating to the Middle East. When Napoleon invaded Egypt, it wasn't for the oil.

As Damian Penny sometimes says, "It's all about SOIIILLL!"

It was the first Arab embargo that made me into a business reporter. I was young then, and didn't know much of anything, but it occurred to me that this story was not going away.

The big change in the world economy during the past 30 years has been the commoditization and multiplication of products, and oil is the most obvious example.

I'll agree with Jim that Europe's enthusiasm for Israel was dropping in 1970. But Europe is, after all and despite what Orrin thinks, Christian; and its support for Israel was never deep.

In the early 1970s, Europe's oil options were limited and it was far more dependent on Saudi Arabia and Libya than the US ever was.

Along came the North Sea fields, bigger tankers, large development in places like Cabinda etc., and the big picture changed. But not many people have noticed.

The people who firebomb SUVs (or merely the ones who look down their noses at them) are frozen in 1973. The State Department is locked in 1973.

Meanwhile, the Japanese (among others) have come to terms to a truly global oil market and seem to be doing OK with it.

Posted by: Harry Eagar at October 26, 2003 3:22 PM

I read a book by Daniel Yergin in the late 1970's. He was absolutley sure that oil would soon cost $100/barrel ($300 in 2003 $'s).

OTOH. I think that the income tax is not a good way to finance the entire federal budget. It is entirely appropriate and fair to impose a gasoline tax in an amount sufficent to amortize the cost of the Iraq war and reconstruction and to provide a sinking fund for the next war in the region. I think $1 a gallon would be a good start.

Posted by: Robert Schwartz at October 26, 2003 10:00 PM

Mr. Herdegen;

You've fallen in to a common trap where you count only the costs and not the benefits. You might consider how many lives were saved and improved because of reliable and affordable oil supplies. I have no doubt that the overall net is very positive.

Posted by: Annoying Old Guy at October 26, 2003 10:30 PM

Yergin. Tee hee.

In 1973 I asked my father-in-law, who was then an Exxon prospector, whether he thought gasoline would ever get to $1 a gallon. He said yes.

Posted by: Harry Eagar at October 26, 2003 11:54 PM


Yes, it's working, but not at maximum efficiency or effectiveness, because the price inputs are incorrect. It's similar to the massive overinvestment during the tech bubble. Venture capitalists kept getting incorrect feedback, so they financed so many fiber optic networks that the cable will be obsolete, before it's all lit.
Take drilling in ANWR, or off the coast of Florida. Either or both might be politically possible, if American consumers paid a monetary price equal to the economic one.

It's true that they would still be killing each other in the Middle East without oil, but less frequently, and in much smaller numbers.


I don't think that we'll burn every last drop of oil - At some point, the cost of extracting it will be more than its utility.

As for burning water, no doubt you are familiar with Dr. Rudolf Gunnerman and his A-55 fuel. Although used almost exclusively for industrial heating applications, this is exactly the type of technology that I'd like to see the Feds subsidize, for more widespread application.

Why shouldn't we look down on SUVs ? There are sedans, station wagons, and pick-up trucks with four-wheel drive, should you live in snowy climes.
SUVs are rarely taken off-road; They are not the safest vehicles on the road, although they are the most dangerous non-commercial vehicles, to other drivers; The only way in which they are the most practical vehicle, for the vast majority of drivers, is that they sit higher, thus affording a better view of the road. Of course, that's why they flip and kill their owners so often.

In short, unless the owner belongs to a small group of people who actually need the combination of off-road ability and passenger capacity, the choice of an SUV is about attitude, and not necessity.
If we could meet all of our energy needs through domestic production, or from purchasing from sane producers, then it wouldn't matter.


I highly doubt that. Consider my above example, of Iraqi - US relations, '90 to present. The 300,000 lives lost figure is extremely conservative. The true figure is almost certainly 800,000, (and some claim 1,500,000), the vast majority from the US-led UN sanctions against Iraq.
Although it's true that some poverty stricken people freeze to death in the US every winter, there would need to be 50,000 deaths a year, due to higher energy costs, to equal the carnage over the past 15 years that following current policy has caused.

Further, it's not as if the US has no resources to substitute for oil. We have vast reserves of coal, for instance.

Posted by: Michael Herdegen at October 27, 2003 6:00 AM


Your comments regarding SUVs sound very, oh, leftish. The buyers of SUVs are simply too stupid to know what is good for them. Does that mean we better get the government to make that decision for them?

Your comment on monetary price vs. economic one is very telling. How do you know the difference, and upon what basis? Presuming you know the difference means you have access to information the market does not. Is that possible?

If energy sources other than oil were economically viable, we would be using them. But, at the moment, they are not. And to mandate their use would make us poorer because we would have to divert resources from other, more productive uses.

Finally, your cited figures are the results of Saddam's actions with respect to sanctions, not the sanctions themselves. And certainly not oil.

Posted by: Jeff Guinn at October 27, 2003 7:34 AM

We must be prepared to kill for the commodity that
makes our way of life.

The Arabs now know this. These savages stumbled
upon black goo for years and could do jack with it.

Western investment made oil a commodity and
western weaponry will secure it. This should be
the unabashed policy of every western nation.

Posted by: J.H. at October 27, 2003 9:12 AM

Well, I wouldn't put it as baldly as J.H.

But he's right.

Posted by: Jeff Guinn at October 27, 2003 8:54 PM

Well, we might not burn every last drop of oil, but we'll burn as much of it as is worthwhile to burn. And then, if we have to, we'll stoke the boilers with live baby caribou from ANWR and all the people who condemn SUVs today will be asking themselves, why didn't we think of this earlier?

Posted by: Harry Eagar at October 28, 2003 2:19 AM

Are SUV's now a political litmus test? I think that that I am about as conservative a person as you can find, and I hate SUV's. I think about my crazy neighbor drivering her enormous SUV-Military vehicle while smoking a cigarett and talking on a cell phone while her litttle dog jumps all over her. What are the odds that she is going to kill somebody?

I am a car guy. I love cars. If you get 12 mpg driving your Aston Marin, that is very cool. But driving a truck with leather seats? That is idiotic.

Posted by: Robert Schwartz at October 28, 2003 2:00 PM


SUV buyers DON'T know what's good for them. Suppose that you saw an obese person at McDonald's, buying a super-sized meal full of fat, sugar, and salt. Would you think: "How very educated of them" ? Just because we LIKE something, doesn't mean that it's GOOD for us.

Further, SUVs are a perfect illustration of "the tragedy of the commons", or, the fact that what's good for an individual, may not be good for society. It benefits me to cheat on my taxes, but I'd be WORSE off, if EVERYONE cheated. Which is also the basic situation, regarding ripping music from file sharing programmes. Some individuals benefit, but they're also killing the golden goose.

As I stated in an earlier post, markets DON'T include all information, even if it's common knowledge. Why do you think that the EPA exists ? Shouldn't the consumers of products and services be DIRECTLY paying to properly dispose of waste, or to not create it in the first place ? Instead, we have gov't regulations and agencies to force companies to price in pollution, and we also are taxed, to clean up what very well might be someone ELSE'S pollution.

Markets are GOOD. They are not PERFECT.

Posted by: Michael Herdegen at October 29, 2003 3:43 AM


How did the country function without an EPA? The EPA may exist simply as a political sop to various interest groups who benefit directly from certain budget items. Your asumption that the imperfection of markets (what's perfect? BTW) justifies government programs (if markets are not perfect why assume gov't is more so? Coercion?) is short sighted. Bad government programs go on forever, bad businesses go under. The market may not be perfect but it does reflect a free exchange, government is force.

Posted by: Tom C., Stamford,Ct. at October 29, 2003 1:14 PM

In some ways, Tom, the country did not function very well without an EPA.

Would you have eaten a fish from the lower Hudson River in 1960?

EPA's later excesses are excesses, but private business's earlier excesses also were excesses.

I think BJB needs to recognize Michael for bravery in citing a known leftist. A good friend of mine uses the original journal article "Tragedy of the Commons" to teach a course on illogical argument.

The kernel is persuasive, but Hardin's elucidation of his own idea, my friend contends, includes every form of specious wrong argument known to man.

Posted by: Harry Eagar at October 29, 2003 3:27 PM