Oil weapon no longer as potent as in the 1970s

EVER since the first oil crisis of 1973, when the Organisation of Petroleum Exporting Countries (Opec) cut back oil production and declared an oil embargo on the United States and Western Europe, the conventional wisdom has been that energy suppliers always would always have the upper hand over energy importers in a showdown. But that understanding of energy power disparity may be about to be upended now that all European Union members have been told to stop all Russian crude oil imports within six months and only import refined products such as petrol or diesel until the end of the year in response to the Ukraine war.

In 1973 then US President Nixon cut the link between the greenback and gold. This caused a drop in the value of the US dollar, causing substantial losses, inter alia, to Arab oil exporters to America, angering them. This happened just as the October war between Egypt and Syria against Israel broke out. Washington was seen as an Israeli ally and that provided an added incentive for Opec to act against the West -- and the US in particular. In the 1970s, the US soaked up a third of the world’s total oil production and 30 per cent of the American economy’s oil needs were imported. So when oil prices surged from US$3 to almost US$12 in just a couple of months as a result of the cutbacks and the oil embargo, it triggered stagflation, a previously unheard-of phenomenon. There was a spike in petrol prices. Car-dependent Americans, in particular, were livid. There were fights in petrol stations when fuel rationing was introduced.

But the oil shock also set off a search for new fuel sources. For instance, there was huge investment in nuclear energy in both France and Japan. Indeed, France now takes about 75 per cent of its energy needs from domestic nuclear sources. The high oil prices also sent prospectors searching for new oil fields which were developed in due course, diminishing Opec’s clout.