Oil Shocks, 1973 and 2022
There are important differences between the oil shocks of October 1973 and the one today.
I am a member of the huge “boomer” generation born after World War II. Like other Baby Boomers I sailed comfortably on America’s seemingly boundless sea of prosperity. I assumed that oil and gas would always be cheap and abundant. I had no idea that America imported one-third of its oil and I had never heard of the Organization of Petroleum Exporting Countries or OPEC.
Everything changed in October 1973. At that time, I was a graduate student at Wake Forest University in Winston-Salem, North Carolina. On October 20th the Arab members of OPEC retaliated for America’s support of Israel by imposing an embargo on oil shipments to the United States. Within a few weeks the price of oil quadrupled.
The OPEC embargo and price increases produced immediate results. Like other Americans, I waited in long gas lines. To save money and gas, I joined a carpool to drive to campus. Although these short-term inconveniences ended with the resumption of oil shipments in April 1974, the oil shock produced lasting results. The embargo marked the end of the post-World War II economic boom and the beginning of a decade of slow growth and high inflation. Known as “stagflation,” these ruinous economic conditions played an important role in the election of Ronald Reagan in 1980.
Fast forward to March 2022. A combination of post-Covid 19 consumer demand and the Russian invasion of Ukraine is causing oil prices to spike above $4.00 a gallon. On March 8th, President Biden announced a ban on Russian oil, gas, and coal.
There are important differences between the oil shocks of October 1973 and the one today. America only imports about 3 percent of its oil from Russia. As a result, there are no lines at gasoline stations and motorists have not begun to form carpools. But today’s oil shock will have significant consequences. Inflation is currently above 7 percent and showing no sign of falling. Many economists warn that the rising cost of fuel and food could push the economy into a recession.
The rising cost of gasoline will also have an impact on the American automobile industry. The 1973 oil shock persuaded many Americans to purchase fuel-efficient Japanese cars. It is possible that today’s oil shock will accelerate purchases of hybrid and electric cars.
The oil shock will impact how voters feel about Democrat and Republican candidates in the upcoming 2022 elections. It is still too early to gauge how Americans are evaluating President Biden’s overall job performance. Textbooks make history seem packaged, predictable, and inevitable. But in truth we can’t escape history. It is unpredictable and subject to unforeseen events like the ones we are now living in.
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