Forty Years After the Oil Embargo

On October 16, 1973, the Arab members of the Organization of Petroleum Exporting Countries (OPEC) announced a decision to raise the price of oil by 70 percent a barrel, which was followed by an embargo on oil shipped to the United States, a five percent reduction in production from September’s levels, and ongoing production reductions in five percent increments until the organization’s economic and political objectives were met. A new analysis from IER takes a look back at the 1973 embargo and examines the present domestic oil and natural gas outlook. IER’s findings include:

1. The embargo, combined with the perverse consequences from oil price controls introduced earlier by Nixon, meant that consumers had to wait for hours in long lines at gas stations, some of which were miles long.

2. Allowing markets to work would have increased prices where supply would meet demand without Americans suffering the long lines and other restrictions on energy usage that Nixon had imposed.

3. Although we have 24 percent less proved oil reserves now than in 1973, proved oil reserves are a small subcategory of our total oil reserves. Currently, the U.S. has 1.442 trillion barrels of technically recoverable oil. When combined with all North American recoverable resources, there is more than six times the amount of Saudi Arabia’s proved oil reserves.

4. The U.S. reached peak oil production in 1970. Since then, crude oil production in the United States had been on a downward trend until 2008, after which a sharp uptick in production occurred as a result of the shale oil boom in the United States from hydraulic fracturing and innovative directional drilling technologies.

5. Although many of our natural resources are found on federal lands, the increase in oil production has been occurring mainly on private and state lands. Between fiscal year 2007 and 2012, oil production on private and state lands increased by 40 percent, while oil production on federal land declined by 23 percent.

6. 1973 marked a year of peak historical production for natural gas at 21.73 trillion cubic feet. While natural gas production declined somewhat after that, it began to increase again after 2005, and has reached a new peak in 2012 of 24.06 trillion cubic feet. The U.S. is now the largest natural gas producer in the world.

7. Technically recoverable natural gas in the U.S. is estimated to total 2,744 trillion cubic feet, more than 100 years of natural gas at 2012 consumption levels.

Much has happened over the past 40 years regarding oil and natural gas production in the United States. America is once again the leading producer of natural gas in the world and is expected to be the leading producer of oil in the near future. The change is the result of the shale oil and gas revolution and the advent of hydraulic fracturing and horizontal drilling technologies that make shale oil and gas production feasible.  After decades of varied and often wrongheaded government energy policies, Americans are benefitting from the private sector, private investment, human ingenuity and the involvement of the states that are not tied to Washington decision making.

To read the full analysis, click here.

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