Remember When Gas Used To Be $3.00 A Gallon?

Ah, I remember it like it was yesterday. The year was 2007. No one must have been buying gas in Cleveland that year because I was buying it for peanuts.

Brushing the good ol' times aside, it is important to point out that the days of $1.50, $2.50, even $3.00 per gallon for gas are gone forever. But before blaming the government, the current administration, 9/11, the war in Iraq, or your friendly neighborhood oil tycoon for this mess, it is important to understand some things about the business of oil.

The business of oil has long been an indicator of how strong or how weak the global economy is, especially in the hearts and minds of western countries and parts of the world with heavily industrialized economies. To put this into perspective one needs to examine some recent history. Let's travel back 30 some years to see if we can compare and contrast some things surrounding the first couple of major US oil crises with that of today's.

In October of 1973 there was an oil embargo placed against the United States, western Europe, and Japan by members of a group known as the Organization of Arab Petroleum Exporting Countries (OAPEC). They refused to ship oil to the US and other countries who supported Israel. Israel in recent weeks had been attacked by both Syria and Egypt in what is now known as the Yom Kippur War. OPEC used these events to dramatically increase the price of exported oil to these countries.

OPEC, or the Organization of Petroleum Exporting Countries, had been established in 1960 as sort of an alliance aimed at protecting the rights and legitimacy of at least 12 oil exporting countries against the "unfair" buying and reselling practices of the US, British, and Dutch oil companies which sought lower oil prices and a reduction in payments to exporting countries for their oil. The 12 original members of OPEC hailed from Iran, the Middle East, Indonesia, Nigeria, Angola, and Venezuela. By the 1970s OPEC wanted a larger share of the world's oil revenues and with it a greater control over the globe's oil production levels.

Was the US "unfair" in its business dealings with the Arab world and its rich oil resources? Was the US support of Israel directly responsible for the spike in oil prices and the subsequent embargo? Or did the OAPEC members see an opportunity to put the squeeze on the US which had been increasing its energy use by over 5% annually and reaping the luxury of consistently low oil prices?

Whatever the reason was, the US found itself near the end of 1973 at the starting line of its first major oil crisis. To make matters worst the US did not have a lot of friends backing them up. The Shah of Iran who was the region's closest ally of the US in those days told the New York Times that the price of oil will increase and increase in a big way for western countries. I think the Shah was a little upset that the West was selling goods like wheat, sugar, and cement to his country at prices 300% above cost. Not to mention the West reselling the same crude oil they bought from them, refined and ready to go at 100 times the price they bought it for. Countries like Iran faced a dilemma. They needed someone to produce their wheat and sugar and had no choice but to pay for it. Maybe they could recover some of these costs by charging more for their oil? Or supporting a 5-month embargo of shipments to the West.

So was it politics or economics which led to the US oil crisis of 1973? I have to refute OAPEC's claim that they are refusing to ship oil to the US because of its support for Israel's right to protect itself from neighbors behaving badly. I'm not an economist, but I'm betting that events leading up to 1973 have its origins in August of 1971. That is when the US, Britain, and other western countries pulled out of the Bretton Woods Accord enabling them to take their currencies off of the gold standard. The US dollar depreciated in value and oil exporters received payments for their oil that was now worth less than before. So they responded throughout the 1970s by pricing barrels of oil against gold. The result was a tremendous oil "shock" which saw the price of oil jump to as high as $80 a barrel by 1979. The New York Stock Exchange lost value. The government affixed price controls and rationing at the pumps (can you imagine today pulling in to a gas station eager to pay $3.86 a gallon and finding a RED flag which back then meant we're closed, no gas?). The government panicked rightfully so in the 1970s and wanted to keep prices from getting too high at the pump and take measures to keep oil production in check. Even at the inconvenience of the consumer.

How does the oil crisis of the 1970s compare with today's? For starters, the same types of people are hit the hardest by high gas prices: the unemployed, the elderly, the young, and businesses which rely on fuel to operate. Fortunately in the current crisis, we have not resorted to shutting down schools and businesses early in the day to save on heating oil like in the 1970s.

Today's problem on the surface appears to be a major oil crisis. The price for a barrel of oil has more than doubled in the past year causing the price of gasoline to hover close to $4 a gallon in recent weeks. A presidential campaign is being conducted with high gas prices being among the top concerns. But is there anything that can be done? Experts from both sides of the political spectrum say no. Not when the world is using up the increasing amounts of gasoline it is. The US and the West (despite federal and private efforts to come up with alternative resources to fuel transportaion and energy) continues to buy oil at record-breaking levels. Not to mention the growing economies of China and India, both of which have seen a dramatic increase in their oil consumption in just the last few years. The greatest super-power country in the world has to ask the Saudis to increase production, namely put a bandage on a festering sore to temporarily relieve the pain at the pump. But the Saudis cannot help because it does not make any sense economically to produce more fuel when they are already meeting the demands of the world just fine.

So are the fuel problems we as the greatest super-power country face today systematic? Event triggering? Driven by increased demand? Or the result of being too "green" and not tapping into our national reserves (estimated at close to 80 billion barrels worth) at home? With no end in sight I vote for a "Manhattan Project" like program to see who can come up with the safest, most economical, environmentally-friendly, economically-profitable vehicle which runs on brussel sprouts (something I won't miss at the grocery store) and competes so heavily against oil it returns prices to 1949 levels and everyone at the pump will have the choice: oil or brussel sprouts? Let's go America. We are the land of opportunity and innovation. Do I have a reality TV show in the making?