In November 1973, members of the Organization of the Petroleum Exporting Countries implemented an oil embargo against the United States that imperiled the nation’s prosperity and international influence. Forty years later, de-linking America’s economy and security from high and volatile global oil prices is even more essential to protecting our domestic and international interests. And the U.S. now has the means to achieve true energy security.
The 1973 embargo, which effectively began Nov. 5 with the announcement of a 25% cut in production, occurred at defining moments of our lives. One of us was secretary of the Treasury, and the rise of OPEC and its “oil weapon” profoundly shifted the geopolitical paradigm and drove the U.S. into a severe recession. The other had just turned an idea to improve the airfreight industry into a new company—today’s FedEx FDX -0.26% Corporation—that was nearly destroyed in its infancy by the spike in fuel prices.
Although America endured and ultimately recovered from the events of 1973, the embargo marked only the beginning of OPEC’s manipulation of the global oil market. By tailoring oil production and investment strategies to keep markets tight and fearful, OPEC members have actively worked in the past decade to engineer expensive oil. As a consequence, prices have reached levels that would have seemed impossible even at the height of the oil crises of the 1970s. OPEC annual export revenue has exceeded $1 trillion in each of the last two years, which ranks among the greatest wealth transfers in human history.
While OPEC members are surely hoping to prolong this dynamic, America’s energy revolution—which is taking place on both the supply and demand sides—has the potential to disrupt the status quo to the nation’s considerable economic and foreign-policy advantage.
On the supply side, the domestic energy boom has reestablished the U.S. as a production powerhouse. In fact, the increase in U.S. crude oil production during the past five years equates to adding another Kuwait to the global oil system. According to the International Energy Agency, the U.S. will surpass Russia in total liquid fuels production (including biofuels) and become the second largest global producer by the end of the year. The U.S. even could surpass Saudi Arabia to become the leading global producer within the next decade.
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