50 Years After the Arab Oil Embargo

Guest

Daniel Yergin

Vice Chairman, S&P Global

Transcript

Dan Yergin [00:00:03] You started to see these shortages in markets and shortages of natural gas because of the inflexible regulation. Schools were shut, factories were shut because of that. People were talking about an energy crisis coming. But what came then was not a single crisis. It was an energy crisis, a geopolitical crisis. And there was a domestic political crisis because of Watergate.

Jason Bordoff [00:00:24] 50 years ago today, on October 17th, 1973, a group of Arab oil ministers announced an embargo on oil exports to the United States and several other countries in retaliation for support of Israel in the Arab-Israeli war. What followed is seared into the American psyche. Fuel shortages across the country left drivers waiting for hours at the gas pump. Even the White House’s Christmas tree remained unlit as a sign of austerity. The Arab oil embargo has defined energy policy in Washington ever since. In the decades since that event, markets have evolved and governments have developed new tools to deal with energy security risks. Although many of the underlying risks remain, what is the legacy of the Arab oil embargo? How did today, as energy security risks compare to those from 1973? And how does the climate crisis complicate efforts to address them? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. Today on the show, Dr. Daniel Yergin. Dan is the vice chairman of S&P Global, a major financial information and analytics company. He’s also the author of several books on the history of energy, including his newest book, The New Map, Energy, Climate and the Clash of Nations. And, of course, the prize for which he was awarded the Pulitzer Prize. He’s widely regarded as one of the world’s foremost experts on energy, economics, geopolitics and energy policy. And he is a member of the advisory board here at the Center on Global Energy Policy. Last week, he joined us for an event at the Center on Global Energy Policy, marking the 50th anniversary of the embargo to explore its history and its lessons. His exceptionally interesting keynote remarks can be found on our website and on the link for this podcast episode. I asked Dan to join me on this week’s podcast episode to discuss the current crisis in the Middle East, the historic events of 1973, the outlook for energy security and what it all means for the energy transition. I hope you enjoy our conversation. Dan Yergin, welcome back to Columbia Energy Exchange. Great to have you with us here in person at the Center on Global Energy Policy. And great to have you again on our program.

Dan Yergin [00:02:45] We’re delighted to be back. Thank you, Jason.

Jason Bordoff [00:02:47] And thanks for spending time with us here at Columbia last week. So this podcast airs tomorrow, but it’s today, tomorrow, Tuesday, October 17th. 50 years ago to the day of the the Arab oil embargo, when Arab nations, specifically ministers of the Organization of Arab Petroleum Exporting Countries, launched an embargo against Israel’s allies, notably the US, in retaliation for support of Israel in the Arab-Israeli war. You and I started talking months ago about the 50th anniversary that that was an important event to mark for a center that studies energy. We had an event last week at which you gave an exceptionally interesting keynote that people can find on our website, and we’ll talk through the insights in it. But of course, neither of us imagined how timely this conversation would be when we started talking months ago about doing it with Israel again, tragically at war with an Arab neighbor of this time, Hamas, the Hamas terrorist organization, and Western nations now coming to Israel’s aid. So I wonder if you could start by talking about what’s happening today, what the similarities are, what the differences are, what role, if any, energy plays or might play as we see what’s happening in the Middle East unfold?

Dan Yergin [00:04:07] Are the most notable similarities of of course is number one it looks like was pretty deliberately chosen to be on the anniversary of the Yom Kippur War, which of course led to the embargo in 1973. Secondly, it came with, as with strategic surprise, both it had what’s called an intelligence failure and a policy failure. And also Hamas did something that they did in 1973 to it chose a Jewish holiday when people were not supposed to be at work but were to be at home with their families. So those are, you know, extraordinary parallels. And some of it, of course, very deliberate for the symbolism of it. The differences, of course, are manifold. This is not a state, but a group, which is one difference than it was Egypt and Syria. Secondly, the United States was actually I just checked these numbers last night, had actually become the world’s largest importer of oil in 1973. And now the US is now the largest producer of oil and a major exporter. And thirdly, obviously, it was an Arab oil embargo. Now, you had the you know, the major Arab Gulf countries were in various states of dialog with Israel and the country that in a sense was friendly with Israel that was shipping it oil was Iran in 1973. And now Iran is the ultimately the principal antagonist here. So those are some of the you know, some of the similarities and some of the differences. And it’s extraordinary to have it come on the anniversary of the event that really introduced the modern age of energy.

Jason Bordoff [00:05:56] Obviously, we don’t know how it will unfold. And it seems like Israeli troops are getting ready for what might be a land incursion into Gaza, a potential humanitarian. Crisis that could result from that. So energy in many ways, the secondary to a lot of what may be coming. But just to stay with energy for a moment, so far, oil hasn’t really been affected very much.

Dan Yergin [00:06:18] No, it had.

Jason Bordoff [00:06:19] Do you see that potentially changing?

Dan Yergin [00:06:22] Well, what it had is that, you know, there’s a geopolitical risk factor now in the price of oil that wasn’t there a week and a half ago. And I think there’s a kind of anxious waiting. Is this a limited military war or is it something that expands and expands in a way that would involve the oil producers of the Persian Gulf in some way? Whether Iran or whether will involve disruption? I mean, we’re not looking you know, there’s not going to be an embargo or anything like that because, you know, the Arab countries are so integrated into the world economy today. And actually, until this this happened, we saw value in economic relationship with Israel. But, you know, there’s certainly the risk there. And, you know, that risk could take many different forms, not only to the flow of oil, but also to the infrastructure that enables the flow of oil. So that’s where the risk calculation is. And, you know, in a week or two, you know, it may look very different, but right now it’s sort of a a a nervous holding action.

Jason Bordoff [00:07:27] And so there are potential transmission mechanisms to oil like Iran getting pulled in and some damage to its oil infrastructure or the U.S. tightened sanctions. But the idea of an embargo, the idea that a group of countries, let’s say in this case Iran, Russia, some other Middle East countries, got together and decided to restrict oil, that’s no longer a risk.

Dan Yergin [00:07:48] No, I don’t think so. I mean, if Iran restricted oil, it would hurt Iran and that supply could be met by other countries. I think Russia, you know, we talk about an oil weapon. Russia tried to use a gas weapon with its invasion of Ukraine and tried to cut off the gas to Western Europe on what for Putin was a rational assumption that Europe was so dependent on Russian gas that this could shatter the coalition support in Ukraine. But it failed and it.

Jason Bordoff [00:08:15] Imposed a lot of pain, but it didn’t show. Yeah.

Dan Yergin [00:08:18] That’s right. And it what it did is it refigure reconfigured global gas supplies. And it’s quite remarkable to think, had it not been for the shale revolution, the United States and the ability for the US to export LNG, liquefied natural gas Europe situation would have been enormously more difficult. Right now, 40% of Europe’s LNG comes from the United States.

Jason Bordoff [00:08:42] And as you said, Russia weaponized gas that did cut off most of its gas exports to Europe. It didn’t cut off its oil exports at some was disrupted. Is that a result of what you were saying a moment ago and how the market has changed in 50 years? If it had tried to do so, Russia would have suffered more than the target of its action with gas. It well, the opposite was.

Dan Yergin [00:09:02] Well, I think we saw that. I mean, Russia can’t. It has a lot of stranded gas now, and it’s going to take a very long time to have pipelines that carry that gas, additional gas to Asia, to China. But on oil, I think we saw with the price cap that was put on Russian oil there was actually trying to do two things at the same time, reduce Russian revenues from the sale of oil. On the other hand, keep Russian oil in the market so that there weren’t shortages. So and price spikes. And, you know, the the price cap was a very ingenious way to try and do that. We saw the other day for the first time, imposing sanctions on two companies for violating the price cap arrangement. And I think that’s a message because there have been people say, well, it worked when oil was below 60, but it doesn’t work when oil is 90. And it’s trying to to to assert that. And remember, the market took a, you know, step up to when that happened also because it suggested a kind of maybe tightening of Russian supplies to the market.

Jason Bordoff [00:10:12] Yeah, it’s interesting. The question I asked was sort of frame the idea of the producer weaponizing oil supply. And your answer goes in the direction of the consumer, weaponizing oil exports. That is what the U.S. and other countries have done with sanctions against Iran or trying to thread that needle with Russia where you go for revenue but not supply.

Dan Yergin [00:10:33] Maybe we say weaponizing demand.

Jason Bordoff [00:10:35] What does that tell us about how oil markets have changed in the last 50 years? I was trying to think about with oil, not with gas, as you say, with Russia, but with oil has. For all the concern over the last 50 years about a country weaponizing oil exports the way we saw in the Arab oil embargo. Has it happened since? Has a country weaponized oil exports that you can think of or has it actually been the consumers that have tried to hurt producers with.

Dan Yergin [00:10:59] Sanctions or sanctions? I think it’s the latter, as near as I can see. I mean, obviously, the market’s enormous change because in the years before. For the crisis over the last couple of years were a transition period because basically oil supply had been integrated. You know, the oil that was produced from a well flowed through the system of a company and all the way through its refineries and gas stations. And the companies posted did set the price posted price. And in the run up to the to the crisis, the exporters, because the market tightened so much, the exporters now had the high hand, high cards and they took control of pricing and ended the concessions and created a very different kind of what became the global oil market and put putting it in today’s dollars. The price of oil was $14 in 1970, and by December of 1973 it was $80 a barrel. So that was the change that came out of this crisis.

Jason Bordoff [00:12:03] And how did that work? There was a different mechanism for setting oil prices back then. So when people speak about producers got together and decided to raise the price. Right. Today, you can see adjustments in OPEC production, and that has an effect on price. But that’s not what you’re talking today.

Dan Yergin [00:12:18] Yeah, I mean, that’s right. Really. The companies posted the price and said, this is the price. And then there was, you know, some finagling around it. Now, in effect, the OPEC countries were posting the price. They were setting the price and saying, this is the price. And of course, that also occurred in a huge panic in which you had a dash, just intense competition for people to get oil because they thought they were going to run short. And then the producers looked at what was happening the price and said, okay, we’ll put the price up.

Jason Bordoff [00:12:50] And that was a shift before the Arab oil embargo of sort of that pricing power.

Dan Yergin [00:12:54] And the price of process was in the process, it was kind of there was a negotiation going on. But if you look back on it, I guess is the way to think about it. It was really the power was being transferred from the companies who had built the global market to the countries, because what had happened is that it became a much tighter market. You know, actually, the exporters, Arab exporters, they tried to have an oil embargo, the oil weapon, because they’d been talking about it for years as a concept. In 1967, it failed because there was too much oil.

Jason Bordoff [00:13:26] This was in the so-called Six-Day War.

Dan Yergin [00:13:28] The Six-Day War? Yeah, the Six-Day War. But the difference between 1967 and 1973 is you had this incredibly rapid growth in demand because of the economic miracle in Europe, the economic miracle in Japan. And demand was going up in the United States, too. I mean, the U.S. had been the really the U.S. had been the swing producer, but it lost that capacity in a market that grew so fast and it moved to the to the Middle East.

Jason Bordoff [00:13:58] Yeah. I mean, people may not know. And again, your speech that’s on our website now lays a lot of this out, that the oil history has always been about a search for price stability. For decades, the Texas Railroad Commission did that and then that if it had not totally yet given up that role in 1967 and I think you said in 1971 is when they finally gave up and said everybody can produce 100%.

Dan Yergin [00:14:21] And they said that the old warrior, as they called it, which was the surge capacity in the United States that came from restrained production, that surge capacity, that old warrior, as well as the head of the Texas Railroad Commission said can’t rise again.

Jason Bordoff [00:14:34] And that so even in a small period of less than a decade, that shift from, you know, rapid growth in demand, much tighter markets and now the U.S. is a bigger importer, it doesn’t have its own spare capacity. That made the difference between the way a weapon being effective and ineffective.

Dan Yergin [00:14:50] That’s right. Because it’s where was it? Where was this wind capacity? It was in the Middle East, particularly Saudi Arabia.

Jason Bordoff [00:14:56] Can you just again, your great keynote that people should and can read, lays lays this out. So just walk us help us understand how we got to 1967 and 1973, the history over a century of the role of oil as a strategic commodity, and how that changed over time and what it what it what it was how was it a strategic a commodity by the time, you know, we’re talking about?

Dan Yergin [00:15:23] Well, I think that in some ways it began with the conversion of the US and the British fleet to oil on the eve of the First World War. But still, you know, they had a.

Jason Bordoff [00:15:35] Military ships, you mean? Yeah, yeah.

Dan Yergin [00:15:38] Battleships. And then but in the First World War you had cavalry charges at the beginning. By the end, you had the airplane, you had trucks and you had tanks, all of which ran on oil. And it became clear oil was a strategic resource. It was not merely a useful commodity. And famous British Lord Curzon, who later became foreign secretary, said that the allies had floated to victory on a wave of oil and the Second World War without.

Jason Bordoff [00:16:05] Control over the oil resource reliably. Any of it was a really important factor in winning the war.

Dan Yergin [00:16:09] That’s right. Yeah. Yeah. And the U.S. was a player in this and the Second World War. When I was writing the prize, I thought, I’m going to write one chapter on oil in the war and ended up writing for because it was just I mean, I discovered so much in terms of doing that. The degree to which within the larger war there was an oil war and it became General Rommel running out of fuel in in North Africa. The Germans seeking to sink the tankers that were carrying U.S. oil to Europe. And out of seven barrels of oil used by the allies, six came from the United States. And then the US Navy was determined to sever the oil supply line on which Japan depended. And one reason I remember when I was researching the prize was one reason for kamikaze pilots was that way they wouldn’t have to use any fuel to come back.

Jason Bordoff [00:17:03] And at that time, I guess so Then you go forward a little bit around the late sixties, early seventies. It was a period of after a decade in which U.S.. Demand was growing faster than U.S. production was growing. And we didn’t yet we still at tell me this, right? We still thought of oil as a strategic commodity, as a military issue, a defense issue. There wasn’t. Someone had said, what’s U.S. energy policy?

Dan Yergin [00:17:27] No, that’s.

Jason Bordoff [00:17:28] Right. There was no Department of Energy.

Dan Yergin [00:17:29] Yeah, That’s why I thought that it was that’s why I said that, in a sense, 73 introduced the modern age of energy because, you know, you had a. Different parts of the government looked after coal or oil, but it wasn’t very high priority and it wasn’t really. News, You know, it was on the business pages. It was not front page news. And suddenly it was transformed. And I think many Americans were also shocked. They didn’t realize actually we imported oil. They still started the image from like the movie giant of of gushers of oil coming in and that how James Dean.

Jason Bordoff [00:18:06] Yeah.

Dan Yergin [00:18:06] How could we not be self-sufficient. And and that was it was such a shock. So there was a hunt for villains. People didn’t think about supply and demand. You know who’s responsible for this? And there was a very rancorous politics in the United States because of that. And as you said, it became high politics, high policy. Jimmy Carter made energy a centerpiece of his administration. There was and we had had, as you pointed out the other day, Jason, we’d had price controls and regulation. The market was very administered. The US government set the price of oil and that came from the anti-inflation policies of Nixon. But all the others were taken away, which have been put in place around 1971. But the controls and the natural gas prices were set by the government, and then the government also was allocating gasoline.

Jason Bordoff [00:18:54] There was the, ah yes, complex allocation system to see who gets.

Dan Yergin [00:18:57] So for the gasoline lines, major reason for them was that the gasoline was being sent to regions that didn’t need it because no one could get there, but it wasn’t going to the areas that needed it. So and it was just a battle of basically a lot of the politics in the 1970s were about whether to decontrol prices or not. Jimmy Carter made energy, you know, kind of the centerpiece of his administration, established the Department of Energy, began the process of decontrol, which led him to be challenged in primaries by Ted Kennedy. And Reagan finished the decontrol. So now you look back on it, the notion that the government was actually trying to control the prices commodity, it seems very odd, but that was the the mindset at the time. And I think that’s one of the lessons that, you know, very strong temptation when there are disruptions in the market for to try and control it. But you prevent the market from adjusting.

Jason Bordoff [00:19:53] I mean, European countries are struggling with that today. Yeah, I think setting price caps and you understand why if people are consumers and households are seeing their prices go through the roof, but it does restrain the ability of the market to respond to those price signals and LNG supplies come into Europe instead of going somewhere else.

Dan Yergin [00:20:08] And I think you had flexible markets that can respond to shocks is really one of the foundations of energy security.

Jason Bordoff [00:20:14] Yeah, I agree. And I think I’ve written that after reading you for many years. So I want to come to lessons from the embargo. But again, just so people understand what happened, because it’s an event that sort of always referred to it as framed obsessed. The obsession with it, I think, has framed so much of energy policy for the last half century. Make sure people know what actually happened. And you talked about how people weren’t really aware of energy of oil. It was on the business page. It wasn’t. And then the shock happened. But but in the year prior, it had moved to the front pages, right. That in the in the winter before the Arab oil embargo, there were very high energy prices. Concerns about energy.

Dan Yergin [00:20:52] Know people had started already talking about an energy crisis. Exactly. Richard Nixon said in the spring of 1973, I think that if we’re not careful, we’re going to have a genuine energy crisis. But I think no one imagined would it.

Jason Bordoff [00:21:04] And so we didn’t have an embargo. What what brought that?

Dan Yergin [00:21:07] Well, it was you started to see these shortages and in markets and, you know, people not, you know, shortages of natural gas because of the inflexible regulation, schools were shut, factories were shut because of that. So there was a growing sense and it’s very interesting when you look back, people were talking about an energy crisis coming. But what came then was not a single crisis. It was an energy crisis, a geopolitical crisis. And there was a domestic political crisis because of Watergate.

Jason Bordoff [00:21:34] And say more what you mean about each of those.

Dan Yergin [00:21:37] So the energy crisis was what we’ve been talking about, the imbalance in the market, the tightening of the market and the inability of the market to adjust because of the inflexibility. You know, it was to raise the price of natural gas to encourage incentives for people to go produce more was sort of off the table. But on a global basis, there was a sense this energy crisis was going to come. The prime minister of Japan in late September, 1973 said, we’re going to have an energy crisis, could come in ten years. Of course, it came within ten days. But so there was that. The geopolitical crisis, of course, was Anwar Sadat, the president of Egypt, who was determined to reverse the outcome of the 1967 war and force the Israelis to negotiation, saw that the way to do that was with a war. And so it was really the political crisis that we continue to see in one form or another in the Middle East. So that was a geopolitical crisis. And then the political crisis at home was Watergate. It was amazing for me what I was just looking back on it, how jarring it was to see the juxtaposition of what was going on. In the world. Israel Prime Minister, consider coming to United States to plead for more aid. And Nixon working out the resignation of his vice president, who was caught in the web of corruption. And Nixon was really preoccupied.

Jason Bordoff [00:23:00] So the connection is they were distracted. The distracting focus on.

Dan Yergin [00:23:03] Yeah, I mean, basically, you know, it’s a memo of the type at the time said we don’t have a functional a functional president, a functioning president. So in a sense, Henry Kissinger, who had the dual job, which no one has ever had before since, have been both national security assistant and secretary of state became, at least in foreign affairs, the sort of embodiment of legitimacy, because as Nixon was losing it and while this crisis was going on, federal courts were ordering Nixon’s tapes to be released, that, you know, his recordings in his office. And so it was you know, he was thinking about that. And they had crucial meetings. And people, you know, were saying saying at the time Nixon was too distraught to participate. Kissinger is in Moscow trying to negotiate a cease fire deal with with the Soviets. And you have what’s called the Saturday Night Massacre, where Nixon fires the Watergate prosecutor and the attorney general and a second attorney deputy quit. And so the country was engulfed in the Watergate scandal. And somehow Watergate got tangled up in people’s minds with the with the energy crisis. But, you know, it’s a lesson about, you know, I think it’s a lesson. I think that when when Washington is in disarray, that makes the world a more dangerous place.

Jason Bordoff [00:24:23] Yeah, it’s not comparable to Watergate, but we can’t seem to get a speaker of the House.

Dan Yergin [00:24:28] Well, yeah, we.

Jason Bordoff [00:24:28] Got a president on trial. And Israel has its own domestic political crises.

Dan Yergin [00:24:33] Which may, you know, which is also suggest it was one of the things that Hamas noted that the country was so district divided into by and by that divided and and focused on that and, you know, not thinking about being overconfident about security.

Jason Bordoff [00:24:50] And so just again, coming to what actually happened. Yom Kippur War, October 6th, about ten, 11 days later, there’s this decision for the embargo.

Dan Yergin [00:24:59] What were they for before that? The day before that was they met the OPEC people, met in Vienna and raised the price. So what happened is that Israel was caught totally unprepared. The army was falling back. Moshe Dayan, who was the defense minister, said the third temple was going to go under. It was a very desperate situation, pleading for American aid and it looked like Israel could be defeated. So they geared up military aid to replenish Israeli supplies. But there was great concern about being provocative by being visible to the Arabs. And so they said that these giant C-5 planes would land at night in Israel. So that wouldn’t be so obvious. But when I was researching the prize, Jim Schlesinger, who had been defense secretary, told me there had been a problem. And the problem was the winds in the Azores, the crosswind, so that the planes couldn’t land at that point of time in the Azores. So they came late and they landed during the day. And once that was totally obvious that the U.S. had come to the aid of Israel and that was would be the trigger for the embargo.

Jason Bordoff [00:26:05] And that was, as you said earlier, in today’s dollars. But but back then, it was a dollar something a few years before, and then it was five something and went to 11. Yeah.

Dan Yergin [00:26:16] Yeah. And that so big that a dollar 82 1145 I think it was was the equivalent today of going from $14 to $80 in the in the commodity which provided at the time half the world’s energy.

Jason Bordoff [00:26:31] And that lasted until March of the following year. Is that right.

Dan Yergin [00:26:34] The embargo last March when finally Anwar Sadat, who had been the biggest advocate for using the oil weapon, the embargo, concluded that the US and Kissinger, that the U.S. could not put create a peace settlement without lifting the embargo. It just couldn’t be done politically. And so in March, I think around March 18th, something like that, in 1974, the embargo was lifted.

Jason Bordoff [00:27:01] And one of the things you said in your speech, really that I hadn’t quite done the numbers around, but I think then it comes to what I want to talk about next, which is lessons. What lessons were learned or should be learned as big and dramatic as an action as the embargo was, It was actually a relatively small amount of the world oil supply that was affected, but it had this outsized impact.

Dan Yergin [00:27:20] Yeah, no one knew. And I think you talked about it in your in your remarks there, which is there just wasn’t the information channels people. Nobody really knew what the price was. And so you just had panic buying going on. And so and you know, somebody wanted to snatch a cargo before somebody else could get the cargo. And it but actually it was 14% of trade. It World War No is 9% of trade IT world. 9% of world oil supply and 14% of internationally traded oil. But it had an outside impact that, you know.

Jason Bordoff [00:27:56] Because there was panic, lack of information. You didn’t have a commodity market that would allow. Yeah. And then houses to.

Dan Yergin [00:28:02] People thought it was a matter of life or death. I mean, the poor countries, you know, because it had become so dependent upon oil.

Jason Bordoff [00:28:09] And what was the response in the years that followed? We took actions to use less oil to climate action.

Dan Yergin [00:28:14] Well, I think there were two things that were really stood out that at a time roughly each equaled 2 million barrels a day. By putting the fuel efficiency standards down on autos. We reduced by the 1980s oil demand by about 2 million barrels a day. Fuel efficiency standards have existed before. People had cars with big tailfins, but fuel efficiency wasn’t. The gasoline was so cheap. And secondly, after much contention, the pipeline was built that brought Alaskan oil down from the North Slope and that added about 2 million barrels a day at the back, at the maximum. And then you had the North Sea development. So you had the development of this new concept called non-OPEC oil.

Jason Bordoff [00:28:54] And that had been very controversial environmentally, and.

Dan Yergin [00:28:57] It’s been.

Jason Bordoff [00:28:57] Held as crisis Congress was pushed.

Dan Yergin [00:28:59] Out because in the summer there had been a legislation to try and make sure that it got due consideration and that had been tied up 5050 in the Senate and it had to be a tie vote that was broken by Vice President Spiro Agnew. But after the oil shock, it got it got the majority it needed to pass the Senate and and then it got built. So by 1977, oil was flowing through it. And by 1977, oil was flowing from the North Sea as well.

Jason Bordoff [00:29:26] And at the time we used a lot of oil for electricity generation and we pulled that out because you could use substitutes and even coal, which well, even.

Dan Yergin [00:29:34] Cardboard, even not even coal. Coal was coal in the 1970s and eighties was rolled out domestic, inexpensive, secure source. So it wasn’t like even call it was let’s go with coal. And because electricity had started to be used more and more electricity, oil is starting to be more and more use electricity for environmental reasons to reduce pollution. And I think New York City was importing low sulfur oil from Nigeria because it was pretty clean burn, complete to coal.

Jason Bordoff [00:30:09] And what are the lessons from that crisis and the whole experience of the 1970s? You mentioned some. We need good data, we need transparency to let markets work. What are some of the important ones we should be thinking about today?

Dan Yergin [00:30:21] Well, I think, you know, I think it could data is not just good data and transparency, but that gives a clearer picture and avoids, you know, diversion into the hunt for scapegoats of one kind or another. And I think energy security, you know, realizing the continuing importance of energy security, I think confidence in markets seems to me, because markets can adjust. And and flexible markets are actually a foundation for energy security. By the way, planning for energy security means planning for disruptions, having alternative supplies, you know, knowing what you’re going to do. And I think, you know, the lesson is also said political disarray and in Washington has a very and a divided country, has an outsize political cost.

Jason Bordoff [00:31:08] And one of the things one of the responses to that was also the creation of the International Energy Agency. And that does many things. But one is kind of new, new buffers, like strategic stockpiles. We didn’t have the Strategic Petroleum Reserve in 1973. Is that important today?

Dan Yergin [00:31:24] Yeah, well, I do not. I mean, one of the characteristics of the 73 crisis was this bruising competition for supplies where you had different countries, each leader stepping in and telling companies, you got to give me the oil, you got to give me the oil. And you know what the International Energy Agency was going to do was yes, it was going to set up a system for sharing, for managing crises, but also for collaboration so that countries were not going at each other.

Jason Bordoff [00:31:54] One of the things I hadn’t really thought of until that event we did last week, and I forget if you said it or someone else, but. In some ways that things that were not a result of the crisis but just happened to occur at the same time, which was a lot of nuclear energy coming online in the 1970s. And so Eisenhower, who also put in place the oil import restrictions, the mandatory oil import program, kind of Atoms for Peace. And that was something that happened, was.

Dan Yergin [00:32:17] Really the nuclear came on really it got going in the seventies, but really it really came out in the 1980s. Electricity source and of course, nuclear became 20% of our electricity.

Jason Bordoff [00:32:31] We’re entering potentially now this new tumultuous period of energy transition. You just worked at S&P with colleagues at the International Energy Forum to explore what that will mean and how what lessons are there from the crisis of a half century ago and with where we are today, and for the potential disruptive nature or jagged path ahead with a transition, what should we be thinking about?

Dan Yergin [00:32:59] Well, I think that, you know, when I was writing the new map, I got really curious because everywhere you went, people were saying energy transition. So I thought, what is an energy transition? So I went back and looked at all the previous energy transitions and I went out. You know, if it we’re an economic historian hat on a limb and said the energy transition began at a very specific time in January of 1709 when a English metalworker named Abraham Darby figured out that you could make iron better using coal rather than wood. But all these energy transitions took a century, and they were never really exactly transitions. They were additions one thing on top of the other. Example coal. Oil takes overtakes coal as the world’s number one energy source in the 1960s. Today, the world uses three times as much coal. And last year was the highest use ever.

Jason Bordoff [00:33:54] So as a percentage, coal is going down. Well.

Dan Yergin [00:33:57] Actually. But I’ll tell you, I looked to see in 1973, that’s a long time share. Well, first of all, oil demand has more than doubled since 1973. But oil share of world economy in 1973 was 50%. Now it’s down to about 32%. Gas was 17% and it’s gone up to about 26%. Coal was 27% of world energy in 1973. And guess what is 27% of World Energy today? So there’s some context there, too.

Jason Bordoff [00:34:30] 27% of a much larger, much larger. And of course, what the planet cares about for emissions. Total. Total use. Yeah. Not percentages.

Dan Yergin [00:34:39] Yeah, but the total. Exactly. But exactly. On a much bigger base. So. But what we set out to do was do a series of roundtables around the world and listen to people rather than talk. And what we heard, we called the study. It’s a rather long name shaping, a living roadmap for the energy transition. And it’s on the AEF website. And basically what we tried to do is kind of get a picture. And what we concluded is that the notion. Which has been out there in 2021 of a linear energy transition. It’s not going to go that way because you think of all the things, Jason, that has happened since 2021. You’ve had a war. Ukraine, Now we have the second war. You had the disruptions of oil and gas supplies. You had the general disruptions of supply chains in general. You had inflation. You had high interest rates. You go down the list of all these things that have happened and you come to the conclusion that the notion that you can just draw a simple line and say you’re going to get there by 2050 is more than challenging. And we came to the conclusion that, I mean, we called it a multidimensional energy transition. It’s going to come at different paces for different countries and even within different sectors, within different countries. And I mean, just and here are the four or five things that really matter. Number one, energy security is back on the table. Affordability is back on the table. Wasn’t the case in 2021. Look at Germany. It’s going ahead with the renewables. But by the way, it’s importing. Starting to import a lot of LNG would have been unthinkable and it just cut through the regulations to go ahead and do that. The second thing is just the scale of change in $100 trillion economy in 25 years. The other two things, three things that stand out. One, this really came through in this study is that the growing North-South divide on energy and the South says the global South says most of the CO2 that’s up in the air. We didn’t put it there. You did. And by the way, we have to be concerned about economic growth, reducing poverty. Otherwise we don’t survive. As you know, as governments, we have to improve health. And so we need a different agenda. And we need you know, we need natural gas to do it. So I think that’s become a stronger voice. And I think and they say our voice really hasn’t been heard. And I think we’ll maybe hear that at COP 28 more strongly.

Jason Bordoff [00:37:09] I heard it at the last cop for sure. And I think you’re right. We’ll hear it again.

Dan Yergin [00:37:13] And then I think we’ll come back to strategic minerals that the new supply chains that’s very important and tied into that, I think is another factor. But even since 2021, the tensions, the great power competition between the United States and China have increased. And I think that complicates the transition as well.

Jason Bordoff [00:37:36] Do you think there is a tension between energy transition and energy security, or have we learned or should we learn from the last two years, Russia’s invasion of Ukraine, what’s happening in the Middle East and potential oil impacts now? Actually, energy security in a faster transition and a move to reduce oil and gas use is actually a good thing. Well, I.

Dan Yergin [00:37:54] Think that, you know, I think diversification. You know, the famous quote that you like and I like from Churchill’s safety and security and oil line variety of variety alone diversification. So as renewables help diversify economies. Absolutely. That’s, you know, a contribution to energy security. But energy security, as we also see, you know, the flows of oil and natural gas are very are very critical. So I do think that there was a tendency in 2020 when prices had been moderate, you know, COVID, etc., people are just not worried. But when you see the chancellor of Germany, you know, German European banks wouldn’t finance a gas pipeline in Senegal. And then the German chancellor shows up in Senegal and says, by the way, we’d like to get some LNG from you. I think that shows thinking about energy security in a in a different way.

Jason Bordoff [00:38:49] You mentioned critical minerals a second ago, and those are critically important part of building a clean energy economy. And I think most people listening know, you know, the concentration in certain countries, and particularly the dominance that China has in a lot of these supply chains, not just mining, but the refining and processing. You’ve looked at a lot of that at S&P and particularly on very abundant but much needed metals like like copper. How should we think about meeting the critical minerals challenge and how is it similar or different than, you know, the energy crises we’re talking about a half century ago?

Dan Yergin [00:39:23] It is different. I mean, I don’t think nobody’s going to line up at a gasoline station to get more copper. I mean, but the other hand, it really affects the speed and the extent of the energy transition, because every electric car takes about two and a half times more copper. So we said we did this study where we looked at the Biden goals, the EU goals, and then we said, what does that mean in terms of technology and in those technologies? How much copper do you need? And, you know, the fact that an electric car uses two and a half times more copper, you know, it starts to add up is said that really you would need to double copper supply by the middle of 2013 to achieve these goals. Now the copper doesn’t disappear. So there’s potential for recycling, which with, you know, oil, you burn it. So that’s a big. Difference. But the scale of what’s going to be required is really large. And then it’s complicated, as you said. I testified two weeks or so ago to the U.S. Senate Energy Committee on Critical minerals. I think every senator I think every senator mentioned China, this question. And even, you know, one of the major objectives of the IRA is about diversifying away from China in addition to energy transition goals. And so I think that complicates it, that China’s position in mining but is even more significant is is this position in processing, which probably started because other people didn’t want to process copper. We had 12 smelters in the United States. Now only two are operating for copper. And China probably originally was doing this because 20 million people were moving to the city every every year and they needed the minerals. But it’s it’s gone from being a sort of a commodity business to it’s become more political right now. And you have the Minerals Security Partnership which says, quote, its aim is to diversify the supply chains. But you can read into that what it means. So I think that’s why I say it’s complicated. And China does have strong position. I mean, right now there’s really no problem on the supply. But look what’s happening with chips looks what’s happening about the things. How do we know it won’t happen? You know? Yeah.

Jason Bordoff [00:41:36] What do you make of that? That. The perception in Washington and elsewhere that China is the new threat to energy security. And Democrats Republicans can’t agree on a lot. But China’s a big problem. Seems to be one of those things. We don’t want to go from dependance on the Middle East for oil to dependance on China for metals and minerals. You sort of hear that refrain. Is that well.

Dan Yergin [00:41:58] It’s not it’s not fraying. It’s really driving policy.

Jason Bordoff [00:42:01] And do you.

Dan Yergin [00:42:02] Think I mean, do you.

Jason Bordoff [00:42:03] Share that concern or do you think the concern is overblown?

Dan Yergin [00:42:06] Well, I think I mean, it’s a reality that I mean, that’s what I felt when I was in the hearing, that you’re not going to change these things overnight. I mean, you want to you know, if you started, you know, made a major mineral discovery, it would take 20 years to turn it into a functioning mine. It’s a much longer lead time than anything else. Permitting. It’s a huge issue. A huge issue. It’s not just a technical issue. It’s a huge issue. And not just in the United States. So I think that the reality is it’s going to be difficult. I mean, I think you’ll see a greater focus on recycling, but you’ve got to get the volume up before you can recycle. The batteries have to come to an end. You know, technology, can you recover more from existing mines, improve efficiency, So all of those things will be there. But you feel this tension on kind of one part of the kind of government wants more minerals, but some other part doesn’t want to get permits for the.

Jason Bordoff [00:43:01] You mentioned a minute ago, I just wanted to come back to your point. What’s different now versus the 1970s? And you talked about how tight markets were then or the U.S. was a big importer and now the U.S. is the largest producer in the world. And then you also noted that the U.S. was careful not to disrupt Russian supply because we would be hurt in the process. How big a difference in terms of energy security differences today versus a half century ago? Does the changing position of the U.S. as a supplier of the shale revolution really make?

Dan Yergin [00:43:30] I think it’s really quite significant. If it wasn’t there, then, I mean, I don’t know what would happen in the world market, you know, just in terms of supply, actually. I mean.

Jason Bordoff [00:43:41] I mean, I don’t know, over the last ten or 15 years, investment would have gone elsewhere. Maybe it would be expensive.

Dan Yergin [00:43:46] But more expensive. And would there have been the scale there? So I think it is a real contribution to energy security. I think it may. I think it. It really matters. I think the fact that we were exporting I’ve been on the think tank, the energy think tank, the Indian government, and I could see that us exporting oil and gas to India gave an important new dimension to a growing and more and more important relationship between the United States and India. And we saw the significance in terms of Europe, I mean, shale gas. So I think we’ve seen the geopolitical significance. You know, and in the new map, I have a the anecdote. I was at the St Petersburg International Economic Forum. I didn’t use the first person in the new map. And some people said that was a mistake. But, you know, here it might have been something to have done because Putin was speaking and he was on the panel with Chancellor Merkel and you could see the antipathy between the two of them. So they gave me the first question I was going to ask about, well, what are you going to do to diversify your economy so you’re not dependent upon so much oil and gas? I mentioned the word shale, and he started shouting at me about how shale is terrible. It’s barbaric, it’s awful, it’s going to poison people. And afterwards I reflected on it. I thought basically he didn’t want shale. He didn’t know necessarily U.S. shale or shale from Europe competing with Russian gas. And he recognized that it would augment U.S. influence in the world. And he was certainly right to see that because we could see without U.S. LNG. The gas weapon might well have worked in Europe. And and it did come close, as you pointed out. Yeah, it was a close call.

Jason Bordoff [00:45:36] By the way, speaking of shale maturing or how shale has evolved, and I’m just curious, coming back to news of the day, your reaction to this mega merger Exxon buying Pioneer for $60 billion is is that notable consequential economic?

Dan Yergin [00:45:53] Well, I.

Jason Bordoff [00:45:53] Think maybe.

Dan Yergin [00:45:55] It suggests another, you know, another stage in the development of shale where what you know, the recovery rates are pretty low. And so I think the agenda is can you apply technology to increase those production rates? Does it mean, you know, U.S. shale is back to where it was before, before the pandemic, Its back to, you know, basically 13 million barrels a day, which is amazing.

Jason Bordoff [00:46:23] Big number.

Dan Yergin [00:46:23] You know, where we were importing 60% of our oil 12 or 14 years ago.

Jason Bordoff [00:46:30] And producing somewhere around five, I think over a decade.

Dan Yergin [00:46:34] Ago. That’s right. Yeah. So it’s quite remarkable. So I think it’s and I think that there’s just, you know, a pattern now in shale. We’ve seen it in other cases of consolidation to get greater efficiency. And, you know, and the pressure on companies is to bring down costs so they both can return money to shareholders. You know, capital discipline, but also continue to invest in growth.

Jason Bordoff [00:46:59] But not grow nearly at the rate Shell was growing before. So when you look at the future, the next ten, 15, 20 years, we’ve talked about the transition, we’ve talked about minerals and clean energy. Oil demand is still rising. Year after year.

Dan Yergin [00:47:11] We’ll see.

Jason Bordoff [00:47:12] Changes.

Dan Yergin [00:47:12] It’ll be 103 million barrels a day this year and next year might be.

Jason Bordoff [00:47:18] How do you noted what might the world might have looked like? But for that additional supply from the U.S., when you look at the decade or two ahead, whether it’s the role of shale or or anything else, what are you looking at worried about? What risks do you see from an energy security standpoint that we should be thinking about and how to lessons from a half century ago or elsewhere? Yeah, in fact, how we should think about addressing them?

Dan Yergin [00:47:43] Well, I think it’s I think the most important thing is to keep energy security in mind and not become complacent. And I think there was a complacency whether people thought share was a good idea or not, because the U.S. was self sufficient to kind of assume that they’re not going to be problems in the world. And it turns out there are problems in the world. And, you know, to have two wars, you know, within a year and a half of each other is pretty, pretty dramatic in both of them. One definitely affecting energy supplies, the other potentially affecting energy supplies. You know, this, you know, U.S.. Growth this year is probably about a million barrels a day. And you add in Canada and Brazil and Guyana, the growth of non-OPEC plus oil equals the growth in demand, basically. U.S. generally view is the U.S. shale growth will slow down and we’re not going to get to a, you know, a super high number. It will kind of stabilize. Then it becomes a question. You know, there’s a debate, is there enough investment going to assure supply if demand keeps growing and. Even though China is having huge problems in real estate and its manufacturing and export sector is not doing so well, travel is doing really well. And so half of the growth in oil demand this year comes from China’s recovery.

Jason Bordoff [00:49:18] Daniel Yergin, you’ve been incredibly generous with your time. Thanks for teaching me and all our listeners so much in the last hour and so much over over years. There’s no more thoughtful, knowledgeable voice of energy, history and policy than yours, and I’m always reluctant to repeat myself, but I’ll do it again because I think I’ve said this before. You’re sitting here in the center of global energy policy with the number ten all around because we celebrated our 10th anniversary this year and this center would not exist and my career would not. Be what it’s been without your mentorship and counsel and with friendships. So thank you.

Dan Yergin [00:49:53] I have to say, it’s been a great source of satisfaction to see. I mean, these ten years went by very fast. And to see the center really establish as the country’s leading center for energy and climate research and the continuing impact it has. And so it’s been great to have been able to play a role in that. So I need to thank you for you and your colleagues for what you’ve achieved here. And even this podcast has become so influential and significant for I meet people all over the country who are listeners to it on a regular basis. So I would say the center’s not only doing research, but it’s doing a lot of teaching.

Jason Bordoff [00:50:33] That means a lot coming from you. Thank you and thanks for your time today. Dan, you’re going to. Thank you again, Dan Yergin, and thank you for listening to this week’s episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. The show is hosted by me, Jason Bordoff, and by Bill Loveless. The show is produced by Aaron Hardwick from Latitude Studios. Additional support from Daniel Prop, Caroline Pittman, Lily Lee, Natalie Voke and Q Lee Roy Campanella, engineer of the show. For more information about the podcast or the Center on Global Energy Policy, visit us online at Energy Policy, Columbia Dot edu or follow us on social media at Columbia U Energy. And please, if you feel inclined, give us a reading on Apple Podcasts. It really helps us out. Thanks again for listening. We’ll see you next week.

Fifty years ago today, on October 17, 1973, a group of Arab oil ministers announced an embargo on oil exports to the United States and other countries in retaliation for America’s support of Israel in the Arab-Israeli War. What followed is seared into the American psyche: Fuel shortages across the country left drivers waiting for hours at the gas pump. Even the White House’s Christmas tree remained unlit as a sign of austerity.

The Arab Oil Embargo defined energy policy in Washington ever since. In the decades following, markets evolved and governments developed new tools to deal with fuel shortages. Still, many underlying risks remain.

What is the legacy of the Arab Oil Embargo? How do today’s energy security risks compare to those from 1973? And how does the climate crisis complicate efforts to address them?

This week host Jason Bordoff talks with Dr. Daniel Yergin about the legacy of the Arab Oil Embargo, the current crisis in the Middle East, and the outlook for energy security.

Dan is the vice chairman of S&P Global, a major financial information and analytics company. He is the author of several books on the history of energy, including his newest, The New Map: Energy, Climate and the Clash of Nations and his Pulitzer Prize winner, The Prize. He is widely regarded as one of the world’s foremost experts on energy, economics, and geopolitics.

Dan spoke at the Center on Global Energy Policy on October 11, 2023 for an event marking the 50th anniversary of the Arab Oil Embargo. His keynote remarks can be found here.

Morningside Campus Access and Status Updates

By Topics

By Regions

By Type

Initiatives

Programs

Partnerships

About

MIssion

People

By Topics

By Regions

By Type

Initiatives

Programs

Partnerships

Guest

Transcript

More Episodes

Relevant Publications

Sign Up Today

Relevant
Publications