Energy: An Emergency Telescoped

Robert Stobaugh and Daniel Yergin

From Foreign Affairs, America and the World 1979

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Summary:  Consider the plight of some distinguished oil expert, a modern-day Rip Van Winkle who had been lulled in the summer of 1978 into a long nap by the then widespread predictions for the 1980s?ample oil supplies at constant or even declining real prices. By the beginning of 1980 he would have awakened to a thoroughly disorienting situation. He would have thought that the year was 2000, for 20 years of anticipated change had been telescoped into one. From $12-13 per barrel in late 1978, oil prices had risen to the $30-35 range, a level that many 1978 predictions had not anticipated until the year 2000. And political threats to the world?s oil supply that had been discussed as potentially serious five to ten years in the future had become visibly critical in 1979 alone. It was a fateful 18 months.

Robert Stobaugh and Daniel Yergin are co-editors of the recently published Energy Future: Report of the Energy Project at the Harvard Business School. Robert Stobaugh is Professor of Business Administration at the Business School and director of the project. Daniel Yergin is a Lecturer at the Kennedy School at Harvard and directs the International Energy Seminar at the Center for International Affairs.

Consider the plight of some distinguished oil expert, a modern-day Rip Van Winkle who had been lulled in the summer of 1978 into a long nap by the then widespread predictions for the 1980s-ample oil supplies at constant or even declining real prices. By the beginning of 1980 he would have awakened to a thoroughly disorienting situation. He would have thought that the year was 2000, for 20 years of anticipated change had been telescoped into one. From $12-13 per barrel in late 1978, oil prices had risen to the $30-35 range, a level that many 1978 predictions had not anticipated until the year 2000. And political threats to the world's oil supply that had been discussed as potentially serious five to ten years in the future had become visibly critical in 1979 alone. It was a fateful 18 months.

In absolute terms the new price increases are greater than those that accompanied the first oil shock in 1973-74; they pose even more serious challenges to the energy and economic policies of all the industrialized nations, but especially to the United States. Strains among these nations focused increasingly on the United States, and the record during the year was not one of good coordination or management. The international energy system seemed to be slipping out of any rational control. American overdependence on imported oil poses not only a host of old problems in graver form but at least one new one, the problem of "hostile oil"-potentially decisive proportions of Middle East oil under the actual or prospective control of governments that are politically antagonistic to the United States. Also, the present outlook forces us to consider how, in the 1980s, we can maintain economic growth with zero energy growth.

Moreover, the fact that time has been telescoped means that the difficulty of meeting the challenge is much greater than would have been the case had its gravity become apparent after the first shock. Responses that might have been sufficient between 1974 and 1979 no longer suffice; today the United States and all the world's importers of oil are caught in an acute and lasting energy emergency. What happened? How was time so accelerated? How did the oil-consuming countries react and what are the needs of U.S. energy policy in the future?

Let us start by reviewing the story of the oil price increases and their proximate causes, including the sorry record of international cooperation, or rather the lack of it. Then, with the focus on the United States, we examine what the record of the year showed in terms of progress toward reducing America's dependence on imported oil and developing a coherent national energy program. Finally we look candidly at the enormous range of actions still needed, and the apparent obstacles to putting these into effect.

II

The years 1974-78 were a kind of Indian summer for world oil, a period of apparent calm and stability. The price of oil in nominal dollars had gradually crept up, from $10.46 ...

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