Four decades after the Arab oil embargo, the United States is less reliant on foreign oil and better prepared for global disruption, industry leaders say.
“That could affect prices temporarily, but any disruption would be replaced fairly quickly,” said Harold Hamm, CEO of Oklahoma City-based Continental Resources Inc. “We’re not going to fall back into the situation of 1973.”
The energy industry changed overnight on October 17, 1973, when the Organization of Petroleum Exporting Countries (OPEC) asserted its control of energy pricing by halting all shipments of oil to the United States.
The effect was immediate.
Refineries and gas stations ran out of product. Prices surged. Consumers waited in lines that wrapped around the block just to fill up their tanks with gasoline.
“I was just getting out of college and into the banking industry,” said Mike Terry, president of the Oklahoma Independent Petroleum Association. “We all saw the long lines at the gas pumps. I just thought, ‘How can this happen? How can foreign countries hold us hostage?’”
In response to the embargo, the country developed the Strategic Petroleum Reserve as a storage bank in case of a similar crisis. The 727-million-barrel storage holds about 40 days worth of domestic usage.
The embargo also led to lower speed limits and growing demand for smaller, more fuel-efficient vehicles.
Still, the country’s dependence on foreign oil grew for decades.
In 1973, the United States was about 30 percent dependent on foreign oil. By 2005, more than 60 percent of the country’s oil was imported.
The United States imported about 6 million barrels of oil per day in 1973. That number more than doubled to 12.5 million barrels per day by 2005.
Industry changes equation
The shale oil and natural gas boom over the past eight years, however, has sharply reversed the trends.
Horizontal drilling combined with hydraulic fracturing, or fracking, has allowed producers to tap vast amounts of oil and natural gas that previously could not be recovered economically.
Today, imports represent less than 40 percent of the country’s oil usage, and much of that is from Canada and Mexico. Total net imports dropped to about 6.3 million in July and is steadily headed downward.
While U.S. producers have tapped new sources of domestic oil, demand for oil is growing in other parts of the world.
Just last week, China topped the United States as largest oil importer at 6.3 million barrels per day.
“Now we can look to the possibility of energy independence,” Terry said. “One of the major benefits of energy independence is not having a reliance on unfriendly foreign powers. There are many benefits to energy independence, but this may be the most important. Anything that happened in one of these oil producing countries in the Middle East has an effect on the price and the markets. We’d all be in such a better place if we didn’t have to worry about that.”
An oil embargo or other supply disruption would be far less problematic today, said Chad Warmington, president of the Mid-Continent Oil and Gas Association of Oklahoma.
“Forty years later, we are not at the whim of OPEC,” he said “It’s remarkable how quickly that’s happened. We’re set to become the world’s largest producer of oil this year. That’s mainly due to shale oil and gas.”
More than just defending against foreign action, domestic production has allowed oil to become a tool in foreign policy.
“We basically did the same thing to Iran last year when Washington embargoed purchases of Iran oil,” Warmington said. “We would not have been able to do that before.”
The U.S.-led embargo took about 1 million barrels per day off the world market. Increased production from North Dakota, Texas and Oklahoma made up for much of the shortfall.
“That gives us the security to not have to use our military might,” Warmington said. “We can use our energy might as a tool for diplomatic negotiations.”
Increased domestic production may also have other effects on foreign policy.
“We didn’t just jump in on Syria,” Hamm said. “The president decided not to do that. Eighty percent of Americans were against that. The realization is that we don’t have to do that anymore. We’re not forced into it because of oil supplies.”