40 years after the upheaval of the 1973 oil crisis the energy transformation has entered the global lexicon, perhaps most famously through the German term “Energiewende”. Both devastating and inspiring, the 1973 oil crisis presented an opportunity to make a change. Like the Fukushima Daiichi nuclear disaster in March 2011, it opened a rare door through which public opinion and policy makers could meet with the common purpose of emerging from a crisis. Looking back today, Aurelia Rochelle Figueroa identifies the 1973 oil crisis can be seen as a turning point in the energy policy debate and the genesis of the ongoing energy transformation.
Following the end of the Bretton Woods system in the early 1970s, the profits of oil producing nations which were paid in US Dollars declined. Negotiations between producing nations and Western oil companies seeking to improve producing nation profits had resulted in failure. Against this backdrop, Western support for Israel in the Yom Kippur War in October 1973 became the ex facie cause of the oil export embargo to the US, the Netherlands, and other Israeli allies.
The embargo wrought broad financial impacts. In the West, prices at the petrol pump skyrocketed. The World War II refrain Don’t Be Fuelish was revived as lines at gas stations snaked into the streets. In producing nations, some of which were only recently developing economies, there was remarkable financial gain and sovereign wealth funds were pumped full of excess revenues. Another story was told in developing economies where the oil crisis had a drastic impact on economic development. Through a phenomenon known as petrodollar recycling, the current account surpluses of exporting nations were made available through loans to developing countries and were then used to fund their oil imports.
Energy security and independence were eagerly sought as a refuge from the crisis. With the urgency of high fuel prices and uncertain supply, public calls were made for energy independence through improved energy efficiency, renewable energy, and increased fossil fuel exploration within domestic borders or friendly nations.
At the international level, the crisis inspired the establishment of the International Energy Agency in 1974 which sought to prevent future oil crises by coordinating oil stocks of Member countries. German Ulf Lantzke became the first Executive Director of the organisation in 1975, less than two years after he championed the first energy programme of the Bonn Government.
The changes prompted by the 1973 oil crisis seemed to vindicate the Club of Rome Limits to Growth report published the year before and have left many legacies which continue to impact energy policies and markets today. Partly responsible for the creation of the German term “Energiewende”, the 1973 oil crisis sparked a debate of a global energy transformation which is still progressing today at varying speeds among countries and regions.
In the 40 years that followed, much has changed in global energy markets as a result of technology, governance, and growth. Advancements in production technologies and changes in market dynamics have made the extraction of unconventional oil and gas reserves economically feasible and have dramatically changed the balance of US petroleum trade vis-à-vis 1973. Policies to price the externalities of fossil fuels have been introduced in a limited number of countries and regions. And, almost exactly 40 years after the start of the 1973 oil crisis, the US ceded its title of world’s top oil importer to China.
These shifts in the global balance of supply and demand may change the nature of potential threats to global energy market stability, but they certainly do not transform or negate them. Likewise, despite the urgency felt in October 1973, rather than transforming the nature of the global energy system in the past 40 years, we have simply changed some of its components. Fossil fuels still account for the vast majority of global energy use and the global energy infrastructure is still based upon them.
In 1973, Western decision makers were blessed and cursed with the mandate to achieve energy independence and security. In that instant, the oil crisis was a deus ex machina in the energy policy saga. Yet with the exit of its workings of high energy prices in some countries, so did the potential for it to affect long-term transformation. Perhaps the importance of energy efficiency and alternative energy development would have had a more pervasive effect had the oil crisis lasted longer. The oil price shock lasted for less than a year and as it faded away, so did the urgency of the search for alternative energy sources and energy efficiency in some countries.
The change that began in 1973 in the heat of crisis has since followed the trend of energy prices; the urgency to implement energy efficiency and find alternative fuel sources rises and falls largely in sync. This unstable movement creates a market full of uncertainty for low carbon development and compounds the risk for potential investors and consumers. This contributes to the low carbon innovation challenge, which must be met within a world based on fossil fuel infrastructure.
Since the crisis, another imperative has been introduced to energy policy: greenhouse gas mitigation. Climate change had not yet fully entered global energy policy debates at the time of the 1973 oil crisis, but since then it has developed into an ongoing crisis in its own right. The imperative of greenhouse gas mitigation further underlines the need for a global energy system transformation through the uptake of energy efficiency and renewable energy.
While improved national and international governance mechanisms can help mitigate the impact of oil crises, they do not exclude. And, while the fungibility of oil lends itself to the prevention of a crisis, it does not preclude the threats to energy and correspondingly, economic security that are naturally raised in a Realpolitik world in which energy supply and demand become tactics in broader geopolitical pursuits.
One may argue that low carbon development has made progress since 1973, and indeed, it has. But take the stark contrast of other forms of technological progress made since then as a comparison, such as telecommunications and the progress from the rotary phone common in 1973 to the smartphone of today. In this and other sectors, multiple technologies requiring new infrastructures have been introduced. Such a drastic innovation trajectory that fundamentally transforms the energy system has yet to be witnessed today.
The 1973 oil crisis spurred many changes in energy governance, markets, and technology, but it has not yet resulted in the realisation of a global energy system transformation. Although the energy security challenges of the crisis sometimes lie dormant, the urgency of implementing a global energy transformation persists. Future energy crises of a geopolitical, economic, or other nature may not be superseded. While governance and market mechanisms facilitate a flexible response to crises, the prescription would best be proactive rather than reactive, including energy efficiency and renewable energy scaleup to realise a resilient energy transformation.
Aurelia Rochelle Figueroa is a researcher at the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE). She specialises in the energy sector and is a member of the Emerging Leaders in Environmental and Energy Policy Network.