The Oil Crisis: This Time the Wolf Is Here

Courtesy Reuters

Oil experts, economists and government officials who have attempted in recent years to predict future demand and prices for oil have had only marginally better success than those who foretell the advent of earthquakes or the second coming of the Messiah. The recent records of those who have told us we were running out of petroleum and gas are an example. Oil shortages were predicted in the 1920s, again in the late thirties, and after the Second World War. None occurred, and supply forecasters went to the other extreme: past predictions of shortages had been wrong, they reasoned, therefore all such future predictions must be wrong and we could count on an ample supply of oil for as long as we would need it.

It was the popular, almost universal theory of the 1960s-still vigorously defended today by a few of its early proponents-that this abundant supply of oil, whose cost of production was very low, and which was found in all corners of the earth, would soon be sold at its "proper" economic price- apparently $1.00 per barrel or less-and for some time it was confidently predicted that this price would prevail in the Persian Gulf by 1970.

As late as February 1970, President Nixon's Task Force on Oil Imports assumed that world price rises would be modest and that the United States could remain essentially self-sufficient in oil. It projected a demand in the United States in 1980 of around 18.5 million barrels per day of oil; of this only five million barrels per day would need to be imported, and most of this could come from the Western Hemisphere. The Task Force did not favor a complete freeing of imports, but thought that the quota system for imports was inefficient and should be replaced by tariffs (a recommendation eventually rejected by the President). Most important, recognizing the danger of importing large quantities of oil from outside the Western Hemisphere, the Task Force recommended that imports from the Eastern Hemisphere should be limited to

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