The Oil Story: Facts, Fiction and Fair Play

Jahangir Amuzegar

From Foreign Affairs, July 1973

Article preview: first 500 of 5,157 words total.

Summary:  The multitude of articles, news reports and commentaries on the energy "crisis" in recent months have been chiefly concerned with four basic issues: (1) a growing (and by implication, a worrisome) oil "shortage" in the United States and the industrial world; (2) an intimate (and by implication, an unholy) alliance between the major oil companies and the Organization of Oil Exporting Countries (OPEC) at the expense of the consuming public; (3) an increasing (and by implication, an undesirable) redistribution of oil revenues through higher oil prices in favor of producing countries, giving them significant (and by implication, excessive) controls over future oil supply and foreign exchange reserves; and (4) a need for concerted action (and by implication, "drastic measures") on the part of the oil-short countries vis-à-vis the "oil cartel."

The multitude of articles, news reports and commentaries on the energy "crisis" in recent months have been chiefly concerned with four basic issues: (1) a growing (and by implication, a worrisome) oil "shortage" in the United States and the industrial world; (2) an intimate (and by implication, an unholy) alliance between the major oil companies and the Organization of Oil Exporting Countries (OPEC) at the expense of the consuming public; (3) an increasing (and by implication, an undesirable) redistribution of oil revenues through higher oil prices in favor of producing countries, giving them significant (and by implication, excessive) controls over future oil supply and foreign exchange reserves; and (4) a need for concerted action (and by implication, "drastic measures") on the part of the oil-short countries vis-à-vis the "oil cartel."

An obsessive preoccupation with the superficial and adversary aspects of these issues has in turn given rise to some unfortunate misunderstandings regarding the real problems facing both oil producers and oil consumers in the next decades. The need for a more balanced assessment of these problems, and for a constructive world view of the situation, has never been so compelling.

II

The genesis of the present energy "crisis" is no mystery. Oil is being depleted much faster than other sources of energy, and its price has been on the rise. Oil suppliers, however, are not the cause of the oil "shortage." Rising oil prices are symptomatic of an expected imbalance between potential sources and uses of oil. And the oil demand and supply arithmetic within the whole energy picture is very simple. In the last three decades the world has used up more energy than in all previous history. In the next years mankind is expected to use up as much energy as it has up to now. On reasonable present predictions, more than 70 per cent of this energy need will have to be met by hydrocarbons, i.e. percent by gas, 54 by oil. Yet despite such unprecedented demands, the supply of natural gas and crude oil has failed to keep pace because production incentives have been weak and inadequate-reflecting in part a deliberate and deceitfully plausible policy by the industrial world to keep premium energy prices below their true costs.

Between 1945 and 1960 the non-Communist world energy demand expanded at the rate of 4 percent a year. During the 1960s the annual growth rate reached nearly 6 percent. On the basis of past trends the total energy demand may double between 1970 and 1985, reaching over 145 million barrels per day (b/d) of oil-equivalent. Total U.S. energy consumption is estimated to double from 33 million to 63 million b/d between 1970 and 1985. Consumption in the European Economic Community (EEC) in the same period is expected to rise by 93 percent; that of Japan by 156 percent.

To meet such enormous energy demands there are three alternatives: (1) to raise the supply of conventional sources (e.g. coal, crude oil, natural gas and hydroelectricity); (2) to look more seriously into further development of more expensive substitutes (e.g. oil shales, tar sands and nuclear power); or (3) to develop exotic energy potentials (e.g. geothermal, solar power, tidal waves and hydrogen fusion). An increase in the supply of coal and hydroelectricity is time-consuming, ...

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