The 1970s was the peak of many things — from anti-war sentiment to hippie culture to a period of wars and revolutions, from Vietnam to Israel to Iran and the wider Middle East or West Asia. With it came a double blow to the global economy. And that holds lessons during the ongoing US-Iran war as the world’s oil supplies are squeezed due to a blockade on the Strait of Hormuz. Those lessons led to many changes, including how cars were built.
Let’s stay in the present for a bit.
Oil prices are once again surging in the wake of war in the oil-rich western Asian region, driving up the cost of petrol, diesel and jet fuel, and threatening a return to stagflation — a toxic mix of higher prices (inflation) and slower growth (stagnation) that hit economies miserably hard a half century ago.
Petrol prices are up in many countries including the US. Farmers are already contending with skyrocketing fertiliser prices, and street vendors in India can’t get enough LPG to cook samosas for their customers.
What happened in 1970s
But the US and world economies are less vulnerable now than they were when Saudi Arabia and other petroleum producers withheld oil supplies to punish countries that supported Israel in the 1973 Yom Kippur War. And that was just one of two major shocks in the 1970s.
The other shock came six years later later with the 1979 Islamic Revolution in Iran, which installed a quasi-democratic, clerics-led regime in place of a US-backed shah or king.
It’s this regime that Donald Trump and his administration had hoped to unseat with the latest war they started, in league with Israel, on February 28.
There is a now two-week truce in place starting last Wednesday, but talks hosted by Pakistan hit a wall on Saturday.
The 1970s had prepared the US and the West at large for such a situation to a great extent. Several countries sought to increase their energy efficiency, reduce their dependence on Middle Eastern (West Asian) oil, stockpile fuel against future threats, and find and develop alternative sources of energy.
“We have decades of experience now dealing with these kinds of oil shocks,’’ said Amy Myers Jaffe, research professor at New York University’s Center for Global Affairs.
Adapted enough?
No matter the lessons, the sheer scale is still unprecedented. In response to attacks by the United States and Israel, Iran effectively shut off the Strait of Hormuz, through which 20 million barrels of oil, or one-fifth of global production, flowed daily.
Lutz Kilian, director of the Federal Reserve Bank of Dallas’ Center for Energy and the Economy, told news agency AP that 5 million barrels daily can either be rerouted from the Persian Gulf to the Red Sea or continue to transit through the Strait of Hormuz.
But that still means that roughly 15 million barrels, or 15%, of daily global oil production is missing, compared with just 6% lost in the 1973 embargo and even after Iraq’s invasion of Kuwait in 1990.
Changes that the US and other countries made over the past five decades have limited the economic fallout from the current war. In 1973, oil accounted for almost half of world energy supplies. By 2023, oil’s share had fallen to 30%, according to the International Energy Agency.
The world still uses more oil than ever in absolute numbers. Consumption topped 100 million barrels a day last year, up from fewer than 60 million barrels a day in 1973. But a much bigger share of global energy is coming from other sources such as natural gas, nuclear, solar, compared to five decades ago.
America, in particular, has weaned itself away from dependence on foreign oil.
When the 1973 oil shock hit, America’s domestic energy production was in decline and its reliance on oil imports was growing alarmingly. But the rise of fracking — pumping high-pressure water deep underground to extract previously hard-to-get oil or gas from rock — rejuvenated US energy production in the 21st century.
By 2019, America had become a net petroleum exporter.
“The US economy is much better positioned than it was in the 1970s,” when it was “particularly vulnerable to an oil price shock,” said Sam Ori, executive director of the University of Chicago’s Energy Policy Institute.
In the early 1970s, for example, the United States got about 20% of its electricity from oil, Ori said. But a law enacted in 1978 prohibited the use of petroleum in power plants. Now the United States gets no electricity from oil aside from a few generators in the far reaches of Alaska and such.
Adjusting for the ride
On November 25, 1973, President Richard Nixon went on television to ask the American people to make sacrifices. To conserve fuel, he urged gasoline pumps to shut from Saturday night through Sunday, to discourage long-distance weekend driving.
He asked the US Congress to lower the maximum speed limit to 50 miles an hour (lawmakers settled for 55 miles an hour, roughly 88.5 km/h) , and to ban ornamental lighting.
Nixon himself promised to dim the White House Christmas lights.
But Professor Amy Myers Jaffe said a repeat “seems highly unlikely”.
Other countries took aggressive action following the 1973 oil embargo as well. The United Kingdom cut the work week to three days to slash electricity consumption. France ordered offices to turn off the lights at night. Japan too made “sho-ene’’ laws, combining the Japanese words for “save” and “energy”.
Mileage push
That’s where cars come in, among other things. American motorists are now paying $4 or more for a gallon (about $1.06 per litre) for petrol — or gasolines, as they call it.
But it’s far from being as bad as 1973, when the oil embargo led to shortages, which led to long queues at gasoline stations.
The US government began imposing fuel economy standards in 1975.
Fuel economy has risen from 13.1 miles per gallon for model year 1975 vehicles to 27.1 mpg in model year 2023. That’s 11.5 km per litre, up from just 5.57 kmpl five decades ago. Americans like big cars still, with fuel-guzzling trucks almost a pop culture phenomenon.
But that’s had to change.
The World Bank, in fact, attributes most of the drop in the global dependence on oil to stricter fuel efficiency requirements for vehicles around the world.
Countries also began stockpiling oil and set up the Paris-based International Energy Agency in 1975 to coordinate responses to energy shocks. Last month, the agency’s 32 member countries agreed to release 400 million barrels of oil in an effort to calm the oil market; included were 172 million barrels from the US Strategic Petroleum Reserve, set up in 1975.
Trump undoes efforts
While much has changed, the University of Chicago’s Sam Ori told AP: “Oil is still king, the No 1 fuel in the US economy.”
Cars, planes, trucks and ships get about 90% of their delivered energy from petroleum. “The lifeblood of the economy — the transportation sector — is still overwhelmingly reliant on petroleum fuel, the price of which is set in a global market,” Ori said, “and a disruption anywhere affects the price everywhere.’’
He also noted that Trump is undoing many of the policies meant to reduce America’s dependence on petroleum and to encourage the use of electric vehicles.
Trump’s sweeping tax bill last year ended the consumer credits or subsidy of up to $7,500 for electric vehicle EV purchases. That “Big Beautiful Bill” also led to friction between Trump and Tesla boss Elon Musk over it.
Trump has anyhow announced a proposal to weaken the car mileage standards and has repealed fines on automakers that don’t meet those standards.
