Fifty years after the 1973 Arab oil embargo, the current crisis in the Middle East has the potential to disrupt global oil supplies and push prices higher. But experts say that the catastrophic price hikes and long lines at the gasoline pump that occurred in the 1970s won’t be repeated.
The Israel-Hamas war has had an impact on oil markets, which have been strained by Saudi Arabia and Russia’s production cutbacks and China’s expected increased demand. Fatih Birol, executive director of the International Energy Agency, said that higher prices would be “bad news for inflation” and would be particularly hard on developing countries that import oil and other fuels.
International benchmark Brent crude rose from $85 per barrel on October 6th to over $91 per barrel on Thursday.
Oil prices depend on how much of it is being used and how much is available. The recent conflict in the Middle East could lead to complications with Iran, home to some of the world’s largest oil reserves. Though the country’s crude production has been constrained by international sanctions, oil is still flowing to China and other countries.
Andrew Lipow, president of Lipow Oil Associates, said that sustained price hikes would require a supply disruption, such as a military strike by Israel on Iranian oil infrastructure or a shutdown of the Strait of Hormuz.
One reason why 1970s-style gas lines are unlikely is because US oil production is at an all-time high. The US Energy Information Administration reported that American oil production in the first week of October hit 13.2 million barrels per day, surpassing the previous record set in 2020. Weekly domestic oil production has doubled since the first week in October 2012.
Mike Sommers, president and CEO of the American Petroleum Institute, said that the energy crisis of 1973 taught us “that American energy strength is a tremendous source of security, prosperity and freedom around the world.” He urged US policymakers to heed the lessons of 1973 and to not “squander our strategic advantage and retreat on energy leadership.”
The current crisis in the Middle East is not a repeat of 1973 because Arab countries are not attacking Israel in unison, and OPEC+ nations have not moved to restrict supplies or boost prices beyond a few extra dollars.
One wild card in the energy market is the supply of Iranian oil. Currently, the US is tolerating the exports of Iranian oil to countries such as China, but this could change if Iran escalates the Gaza conflict. Lawmakers from both parties have urged Biden to block Iranian oil sales.
Another wild card is how Saudi Arabia would respond if Iranian oil is restricted. Oil analysts say that the Saudis do not want a massive price spike that could fuel inflation, higher central bank interest rates and possible recession in oil-consuming countries.
A third unknown is whether more oil will reach the market from Venezuela. The US agreed to temporarily suspend some sanctions on the country’s oil, gas and gold sectors after Venezuela’s government and a faction of its opposition formally agreed to work together on election reforms.
Wyoming Sen. John Barrasso criticized the US action as a “gimmick” that appeases a brutal regime in Venezuela. He said that Biden’s energy policies “put America last” and that America should “never beg for oil from socialist dictators or terrorists.”
The Treasury Department has targeted nearly 1,000 individuals and entities connected to terrorism and terrorist financing by the Iranian regime and its proxies, including Hamas, Hezbollah and other groups in the region.
The US Energy Department said that it will seek offers to start refilling the oil reserve in December, with monthly solicitations expected through May 2024.
Experts say that, while the current crisis in the Middle East has the potential to disrupt global oil supplies and push prices higher, the catastrophic price hikes and long lines at the gasoline pump that occurred in the 1970s won’t be repeated. US oil production is at an all-time high, and US policymakers have been urged to heed the lessons of 1973 and to not “squander our strategic advantage and retreat on energy leadership.” The US has taken action to target individuals and entities connected to terrorism and terrorist financing, and it has temporarily suspended some sanctions on Venezuela’s oil, gas and gold sectors. Despite the current crisis, US oil strength is still a source of security, prosperity and freedom around the world.
