By Aurelia Figueroa
Both devastating and inspiring, the 1973 oil crisis presented an opportunity to make a change. Like the Fukushima Daiichi nuclear disaster in March 2011, it opened a rare door through which public opinion and policy makers could meet with the common purpose of emerging from a crisis. Looking back today, the 1973 oil crisis can be seen as a turning point in the energy policy debate and the genesis of the energy transition.
Paid in US Dollars, oil exporting nations were negatively impacted by the demise of the Bretton Woods system and sought to improve their profits. The related negotiations between producing nations and western oil companies that preceded the crisis had resulted in failure. Against this backdrop, Western support for Israel in the Yom Kippur War became the ex facie cause of the oil export embargo to the US, the Netherlands, and other allies of Israel.
The crisis had financial impacts at all levels of society in embargoed nations and beyond. Prices at the petrol pump skyrocketed following the first of several production cuts and price hikes implemented by Middle East oil producing nations on 16 October 1973, raising the price of a barrel of oil by 70 per cent. The World War II refrain Don’t Be Fuelish was revived as lines at gas stations snaked into the streets.
The 1973 oil crisis brought remarkable financial gain for producing nations. In developing economies, the oil crisis had a drastic impact on economic development. The immediate impacts of this were lessened by borrowing through petrodollar recycling, whereby the current account surpluses of exporting nations funded the oil imports of developing nations.
In the wake of the crisis, energy security and independence were eagerly sought. The underlying conditions which spurred the upheaval were not transitory – crisis could soon knock again. With the urgency of high fuel prices and uncertain supply, public calls were made for energy independence through improved energy efficiency, renewable energy and increased fossil fuel exploration within domestic borders or Western-friendly nations.
At the international level, it inspired the establishment of the International Energy Agency in 1974 which sought to prevent future oil crises by coordinating oil stocks of Member countries. At the national level, energy standards were spurred, such as the Corporate Average Fuel Economy (CAFE) standards in the US.
Short-term change or long-term transformation?
The changes prompted by the 1973 oil crisis seemed to vindicate the Club of Rome Limits to Growth report published the year before and have left many legacies which continue to impact energy policies and markets today. It is partly responsible for the creation of the German term Energiewende and sparked a debate of a global energy transition which is progressing today at varying speeds among countries and regions.
Perhaps the importance of energy efficiency and conservation would have had a more pervasive effect had the oil crisis lasted longer. The oil price shock lasted for less than a year and as it faded away, so did the urgency of the search for alternative energy sources and energy efficiency in some countries.
Still, technological advancement sparked by the 1973 oil crisis has gradually improved the cost-benefit calculus in favour of energy efficiency and renewable energy. Yet much progress is still to be made regarding technical and non-technical barriers on the path to implementation. Low carbon development must emerge within a world based on fossil fuel infrastructure. This compounds the innovation challenge and makes the emergence of low carbon energy technologies all the more difficult.
40 years on
In 1973, Western decision makers were blessed and cursed with the mandate to achieve energy independence and security. In that instant, the oil crisis was the deus ex machina in the energy policy saga. Yet with the exit of its workings of high energy prices in some countries, so did the potential for it to change the storyline also fade.
The change that began in 1973 in the heat of crisis has since followed the trend of energy prices; the urgency to implement energy efficiency and find alternative fuel sources rises and falls largely in sync. This unstable movement creates a market full of uncertainty for low carbon development and compounds the risk for potential investors and consumers.
The 1973 oil crisis formed the basis for the energy transition, the progress of which has been uneven. While the energy security challenges of the crisis lie dormant in relatively stable times, the urgency of implementing a resilient energy transition persists. Today as 40 years ago, energy efficiency and renewable energy sources remain key elements of a resilient energy system that is prepared for the next crisis – whenever that comes.
Aurelia Rochelle Figueroa is a researcher at the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), a strategic partner of IDS for work on the green transformation. Aurelia specialises in the energy sector and is a member of the Emerging Leaders in Energy and Environmental Policy Network.
A version of this blog post appeared online on 14 October 2013 in DIE’s The Current Column.