Thirty years ago, on October 17, in an attempt to influence U.S. Middle East policy, the OPEC cartel, spearheaded by Saudi Arabia, decided to cut oil supply to the U.S. Within weeks petroleum prices shot up by more than 300% and by the end of 1973 a gasoline shortage was felt throughout the country. The embargo was an assault on America's way of life, specifically its car-loving culture. Americans were forced to curtail their driving and electricity consumption habits, often at great inconvenience. Suburban moms mastered the art of carpooling, the only alternative to standing for hours in lengthening queues in service stations only to meet the sign "sorry, no gas." Christmas of 1973 was dim. For first time the lights on the national Christmas tree were not switched on. By early 1974 the U.S. was hit by the worst slump since the Great Depression.

By the time the embargo was lifted, in March 1974, the global economy was devastated. In the U.S., unemployment doubled due to the loss of 500,000 jobs, and GNP declined 6%. Europe and Japan suffered a similar fate. The impact on the developing world, especially the poor, newly created countries in Asia and Africa, was even worse. Countries completely dependent on energy imports suddenly found themselves under heavy debt from which many of them have not been able to recover to this day.

U.S. prestige also took a toll. In the midst of the Cold War, America's soft economic underbelly became apparent to all. Without oil, it was a paper tiger. Then U.S. Secretary of Defense James Schlesinger was the first to realize that when he received a telegram from Exxon Corporation announcing a cut off of all oil deliveries to the Sixth Fleet and U.S. forces in Europe. At the peak of the drama, Secretary of State Henry Kissinger indicated the U.S. was prepared to send military forces to the Persian Gulf to take over whatever country was needed to ensure oil supply.

Thirty years later, with U.S. relations with the Muslim world at an all time low and at a time when our dependence on Middle E ast oil is on the rise, how likely it is that OPEC members ever use the oil weapon again?

Conventional wisdom says that even though some OPEC countries have an astounding record of acting against their own self-interest, it is unlikely that they would dare tamper with oil prices any time soon. The reason being that those countries that initiated the embargo ended up being its prime casualties. The petrodollar windfall allowed countries like Saudi Arabia, Iraq and Iran to finance ambitious building projects, shopping sprees of military articles and the lavish lifestyle of their leaders. This brought to their decline. OPEC countries based their economies on oil products, failing to use their wealth to diversify their economies, build a strong industrial base, and improve the standard of living of their populations. In Iran, the infusion of petrodollars brought the Shah to indulge in a fantasy of imperial grandeur and lose touch with his people until he was overthrown by the mullahs. In Iraq, oil money allowed Saddam Hussein to build the world's fifth largest military which he kept hurling against his neighbors every few years. In Saudi Arabia the oil boom fueled corruption, productivity loss and social discontent. The kingdom per capita GDP dropped in just two decades from $28,000 twenty years ago to below $7,000 today.

To make things worse for OPEC countries, the oil crisis led the international community to cultivate competitive sources of supply such as the North Sea, Alaska, Mexico and more recently Russia, the Caspian and West Africa, in an attempt to reduce dependency on the Middle East. Additionally, the oil shock increased public awareness to the benefits of conservation. The conservationist effort became a national priority during the presidency of Jimmy Carter who, in February 1977, sitting beside a gleaming fireplace and wearing a cardigan sweater, delivered a speech on national television, saying that reducing U.S. dependency on foreign oil, was the "moral equivalent of war." It worked. In the next ten years after 1973, conservation proved to be America's fastest growing energy sector. Fuel efficiency of the average American car nearly doubled. Electricity generation from oil dropped from 17% of the nation's total power output to 2% today. The share of homes using oil for heating went down from 31% to 10%. The oil shock also launched a wave of technological innovation in the field of alternative energy and gasoline substitutes. Energy saving patents were registered by the thousands, and several government bureaucracies to enforce and encourage conservation were established. As a result of all these measures between 1979 and 1985 oil consumption in the U.S. decreased by 15%, oil imports fell by 42% and imports from the Persian Gulf by 87%. Most importantly, OPEC's market share dropped from 70% in 1973 to 40% today.

Despite OPEC's grand setback, the widely held assumption that the oil weapon has passed from the world is misplaced. In fact, never since 1973 have there been so many cases of Muslim leaders threatening to use the oil saber, or at least rattle it when tension with the U.S. has deepened, as in the past year. Last October, member countries of the Organization of the Islamic Conference entertained the idea of an oil embargo to stop the U.S. from attacking Iraq. Mahathir Mohamad, the Malaysian prime minister, said: "Oil is the only thing Muslim nations have which is needed by the rest of the world. If they can cut back on supply, people will not be oppressive on them. [..] It can be used as a weapon to protect the interest of Muslims." Earlier, in April 2002, Saddam Hussein declared an oil embargo for thirty days in response to Israeli military operations in the West Bank. Libya immediately announced that it would follow suit if other Muslim oil-producers imposed an oil embargo. Iran's supreme leader Ayatollah Ali Khamenei stepped up to the plate reminding his OPEC colleagues that if the west did not receive oil, "their factories would grind to a halt. This will shake the world!" A day later, similar sounds came from Saudi Arabia, holder of a quarter of the world's oil reserves. According to the New York Times, on the eve of President Bush's summit with Saudi Crown Prince Abdullah, unnamed members of the Saudi royal family discussed reusing the oil weapon. The Saudis denied the report. Palestinian leaders have also urged their Arab brothers to show more muscle and use the power endowed to them by Mother Nature. Farouq Al-Qaddoumi, head of the PLO political bureau and secretary general of Fatah's Central Committee urged the Arabs to use the oil weapon in order to pressure Europe to take a more forceful anti-Israel position. And so it goes.

True, all these threats proved idle and OPEC countries kept supply at a reasonable level. But the fact that key political leaders in the Muslim world still perceive oil as potential weapon against the west is unsettling and raises questions about the long-term future of our energy security. If another oil embargo is not in the cards today, this is only because of its current questionable utility for OPEC's members who need oil revenues to sustain their growing populations, not because they perceive the strangulation of America's economy to be immoral. This calculus could easily change as the world becomes more dependent on OPEC. And it rapidly does.

Since September 11 well-intentioned politicians have began pushing for reduction of U.S. dependence on Middle East oil by rushing to buy increasing quantities of oil from non-OPEC producers such as Russia, Mexico, Colombia, Angola and Kazakhstan. At first glance, this may seem to be a reasonable policy. But in the long run, nothing could compromise U.S. energy security more. Because reserves in non-OPEC countries are relatively small and not subjected to production quotas, they tend to deplete faster than OPEC's. The overall reserves-to-production ratio -- an indicator of how long proven reserves would last at current production rates -- in non-OPEC countries is about 15 years comparing to roughly 80 years in OPEC's.


With world oil production projected to increase by about 65% in the next 25 years, many of today's large producers, including the U.S., Mexico, Norway and Russia, will reach a point in which they are no longer relevant players in the oil market. At that point the percentage of world oil reserves concentrated in OPEC countries will reach 95%, and OPEC's share of total oil supply is projected to bounce back to a level higher than in 1973.

The idea of a world in which so much oil is concentrated in the hands of so few does not deprive sleep from many in Washington. It should. If relations between those who need oil and those who own it continue to worsen, as now seems to be the case, there would be enough reasons for OPEC countries to use their economic power against the west once they resume control over the oil market. After all, as Mahathir Mohamad said, "angry people cannot act rationally."

This leaves us two decades to achieve one of two things, preferably both: either dramatically improve U.S. relations with the Muslim world bringing it to the point that the use of the oil weapon becomes unthinkable. This would entail monumental tasks such as resolution of the Arab-Israeli conflict, democratization of the Arab world and suppression of radical Islam. Alternatively, the U.S. could lead the world in the no less challenging task of reducing global demand for oil by displacing it as a dominant source of transportation energy. This can be done through a shift into an economy based on fuels made from anything but petroleum.

Such energy transformation, equivalent to the shift from wood to coal in the 17th century or the shift from coal to oil three centuries later, is becoming increasingly feasible. Non-oil based transportation fuels such as methanol, ethanol, biodiesel, hydrogen and others can be derived from abundant resources such as clean coal, natural gas, biomass, and municipal waste. Electricity produced from nuclear, wind, hydropower could move vehicles with similar performance and less pollution. Advanced automobile technology using flexible fuel engines, fuel cells, hybrid engines and powerful batteries can accommodate the new fuels with relatively easy market diffusion.

Monumental task? Perhaps, but a worthy one considering the alternative of facing OPEC's fully loaded weapon sometime in the future. Or as one Chinese proverb said: If we don't change course, we'll end up where we're headed.

Gal Luft is Executive Director of the Institute for the Analysis of Global Security.


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