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Monday, 8 April, 2002, 16:16 GMT 17:16 UK
Analysis: Another oil embargo?
1973: The year the lights went out
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By James Arnold
BBC News Online business reporter
line

If [the Western countries] do not receive oil their factories will come to a halt. This will shake the world."

Major supply disruptions
1956, Suez War: 2m barrels per day of output lost
1967, Six-day War: 2m barrels per day
1973, Arab oil embargo: 2.9m barrels per day
1979, Iranian revolution: 3.5m barrels per day
1980, Iran-Iraq War: 3.3m barrels per day
1990, Gulf War: 4.6m barrels per day
Source: US EIA
Ayatollah Ali Khamenei, Iran's supreme leader, has no doubts that an embargo on oil exports from the Islamic world will have a paralysing effect on the global economy.

Iraq's Saddam Hussein agrees, and has already taken the first step, stopping all his country's oil exports to the Western world.

The idea of an oil embargo is slowly gaining ground in the Muslim world as it attempts to freeze out Israel, and whose powerful allies in Europe and the US rely on Middle Eastern oil.

The current talk of an "oil weapon" raises the spectre of 1973, when Opec shut off supplies and sent prices skimming up from $2.50 a barrel to $11 in a matter of weeks.

Now, when global prices already painfully high, is the West in any position to withstand another oil drought?

Cartel chaos

Thirty years ago, the Arab oil embargo caused chaos.

The Organisation of Petroleum Exporting Countries (Opec), keen to flex its cartel muscles, switched off supply at a time when the market was already starting to suffer shortages.

Dubai oil prices

Starting with lengthening queues at the pump, the energy crisis reached such a pitch by the end of the year that the US opted not to switch on the lights on the national Christmas tree.

By the end of the 1980s, crude oil prices were more than 10 times their 1973 levels - and despite a stumble in the 1980s, they have never looked like heading south for good.

Planning ahead...

But if Ayatollah Khamenei hopes to pull off the same trick again, he may be disappointed.

Fuel shortages in the UK
Fuel shortages: A politician's nightmare

First, the Western world - the 30 rich countries that account for more than half of all oil consumption - has learned the lessons of the 1970s.

Sources of supply outside the Opec cartel have been cultivated: the North Sea, source of close to 10% of world oil output, came on stream in the mid-1970s.

And rich countries realised that they needed to plan for catastrophe.

The International Energy Agency (IEA) was set up in 1974 in the hope of concentrating minds on energy policy.

Two years later, the US initiated its Strategic Petroleum Reserve in 1976, and IEA members now hold 4 billion barrels of oil stocks, which represent at least 114 days of net imports.

... and cutting down

At the same time, the West has become more energy-efficient, or at least more oil-efficient.

Fuel protests in Caracas
Drivers call the shots these days

In 1973, the US consumed 20 million British thermal units of energy to produce $1 of gross domestic product. By 2000, that figure was down to 13 million.

Overall world energy consumption has risen sharply since the Arab embargo - from 4.5 billion tonnes of oil equivalent to 6.7 billion today.

But the share of oil within that mix has fallen well below half, as consumers - especially industrial ones - shift to cleaner and sometimes cheaper gas and electricity.

And the robust-seeming figure in energy use growth is mainly based on resurgent economies in the developing world; among rich countries, growth has been distinctly unspectacular.

Motor madness

All this has led to a considerable calming in oil prices in the past decade.

UK oil import prices

But there is a more subtle reason to be wary of any major supply disruption.

As companies in rich countries have cut back their reliance on oil, the dominant oil consumer is now the motorist.

The transport sector accounts for 60% of world oil demand today, compared with about 40% in 1973.

And while hikes in company energy bills tend to vanish seamlessly into the inflation statistics, the slightest uptick in motor fuel prices can cause near-panic.

In recent years, sensitivity over petrol prices has reached fever pitch, with demonstrations in 2000 in the UK, France and the US, and more unrest threatened this time around.

Pipe dreams

Lucky, therefore, that a concerted embargo is unlikely to come off.

Ayatollah Khamenei's remarks and Iraq's threat of action have met a chilly reception among core Opec members.

Iranian leader Ayatollah Ali Khamenei
Iran sees oil as a weapon

Saudi Arabia, the cartel's biggest member, is keen to be seen as moderate - and is desperately sensitive about allegations of gouging hard-pressed oil consumers.

Few analysts reckon enough Islamic oil producers feel sufficiently strongly about the Israeli unrest to shut off the oil taps for any protracted period; as in all cartels, the temptation to break ranks could be unbearable.

However, the Iraqi action coming at the same time as a fierce labour dispute in the Venezuelan oil industry could combine to create a "global oil crisis", warns Opec's secretary general Ali Rodriguez.

But with many of the world's main producers overwhelmingly dependent on oil revenues, they have more to lose from an embargo than most of their customers.

If Iraq, Iran and others use their "oil weapon", they may just end up shooting themselves in the foot.

See also:

05 Apr 02 | Business
Iran wields oil embargo threat
05 Apr 02 | Middle East
Israel ignores Bush pullout call
08 Mar 02 | Business
Opec: The oil cartel
31 Aug 00 | Business
Oil markets explained
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