After the Second Shock: Pragmatic Energy Strategies
Article Summary and Author Biography
Almost exactly five years after the first oil shock, the second began. The parts of the puzzle are arranged quite differently this time around, but the two central pieces are the same. The upheaval in Iran has meant an interruption of supply and a loss to world production already as great as that from the 1973 embargo; the tight world oil market which had been predicted, just last fall, only for the mid-1980s or beyond is already upon us. And, as a direct result, the OPEC countries-which in December 1978 had already announced a substantial price rise during 1979-are further increasing prices.
Robert Stobaugh and Daniel Yergin are co-editors of Energy Future: Report of the Energy Project at the Harvard Business School (to be published in 1979 by Random House) with I. C. Bupp, Mel Horwitch, Sergio Koreisha, M. A. Maidique, and Frank Schuller. Professor of Business Administration at the Business School, Robert Stobaugh is 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. This article reflects the main conclusions of the Energy Future Report, and is based on the six-year research program that lies behind that study.
Almost exactly five years after the first oil shock, the second began. The parts of the puzzle are arranged quite differently this time around, but the two central pieces are the same. The upheaval in Iran has meant an interruption of supply and a loss to world production already as great as that from the 1973 embargo; the tight world oil market which had been predicted, just last fall, only for the mid-1980s or beyond is already upon us. And, as a direct result, the OPEC countries-which in December 1978 had already announced a substantial price rise during 1979-are further increasing prices.
It is, of course, too soon to say whether this second shock will be as great an earthquake as that of 1973-74. But it has certainly dramatized anew how great is the insecurity that results from the United States depending to the present degree on the Middle Eastern producers. It also reminds us again how it is the "accidents," which cannot be put into an economist's equation, that reshape the market.
Within the United States, this second shock should bring to an end what had become an increasingly powerful tendency to pronounce the energy crisis a thing of the past, to discount the possibility of a second shock and instead to project scenarios depicting a glut of oil on the world market. In particular, it spotlights the steady rise in American oil imports, from 25 percent of consumption in 1971 to the current level of about nine million barrels per day (mb/d)-almost half of U.S. oil consumption. Here is the key contradiction of U.S. energy policy-that while the declared goal has been to hold steady or decrease oil imports, they have kept rising. This increase has been watched with dismay by other Western nations, who see this growth accentuating trends that pose fundamental threats to their well-being. Their stands and actions on other issues, such as nuclear weapons proliferation and the dollar, are directly related to their perception of America's inability to control imports.
This second oil shock, combined with the depreciation of the dollar, has again made clear the urgent need to move away from heavy reliance on foreign oil. But general perception of the danger hardly means any consensus about how to do this. Intense emotions and suspicions abound on the energy issue-not surprisingly, since very large stakes and a great deal of money are involved.
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