Over a Barrel

By Kenneth M. Pierce

Ready for oil shock?

A decade after the Arab oil embargo caused panic at the nation's gas pumps and sent the price of oil soaring from $3 per bbl. to more than $20, U.S. reliance on imported oil has scarcely dropped.

In late 1973, when the five-month embargo began as a direct result of the October War, oil imports totaled 36% of U.S. consumption, or 6.2 million bbl. per day; last August, imports reached 35.7%, or 5.97 million bbl. How would the nation fare today if Arab leaders deliberately turned off the tap, or if the fields were damaged, or if some other unpredictable trauma occurred? Many experts share the view of Henry Schuler, who directs energy and security studies at Georgetown University. Says he: "I don't think we're better off at all."

That may strike consumers as too gloomy a view, since the world is currently awash in a glut of oil that, according to some experts, may continue for a decade or more. The 1973 embargo and the 1979 supply interruption that followed the Iranian revolution helped spur reductions in demand and a spate of conservation measures. Despite a decade's growth in population, total domestic oil consumption today (15 million bbl. per day) is even lower than the level of 1973, an achievement not anticipated then. Autos made by the big three domestic manufacturers averaged roughly 12 m.p.g. in 1973; today, that figure is closer to 24 (still short of the Government's target for 1983 of 26). In 1973, the U.S. relied on OPEC for 48% of its imports; today, only 30% of the nation's imported oil comes from OPEC.

Even so, the U.S. continues to draw on nonrenewable fuels (petroleum, gas and coal) for 90% of its energy needs, not much below the 94% of 1973. The price and supply of oil worldwide remain very delicately balanced. Despite a frenzy of oilfield drilling set loose by oil decontrol, domestic production has actually slipped to 8.65 million bbl. daily, compared with 9.2 million in 1973. Now 30% more coal is being burned, but production of domestic natural gas declined by 18% in the decade. After six years, Washington's planned strategic petroleum reserve of 750 million bbl., which equals 90 days of oil imports, is only 44% filled.

Last week the Energy Subcommittee of the House Government Operations Committee, chaired by Oklahoma Democrat Mike Synar, hotly debated whether the Reagan Administration has made, or intends to make, adequate plans for a future oil shock. At issue was a "what if" exercise conducted over an eight-week period this spring by the International Energy Agency (IEA), a 21-nation group created to coordinate worldwide responses to future oil crises. The high-stakes exercise began with a simulated telegram sent by the IEA secretariat in Paris announcing that 8 million bbl. daily had vanished from world pipelines. Reason: a hypothetical blockage of the Strait of Hormuz (not too farfetched in light of the three-year-old Iran-Iraq war) and sabotage of Nigerian oil facilities.

To the dismay of most participants, during the hypothetical crisis the U.S. Energy Department did not move to control supplies or limit the price of oil. As a result, U.S. oil prices zoomed to a theoretical $98 per bbl., with gasoline priced at $2.83 per gal. As Wisconsin Energy Administrator Roy Christiansen recalls: "The Feds didn't seem to be concerned, or want to deal with it." During the game, Wisconsin energy officials telexed Washington: "We hope it will not take the economic collapse of one of these cities . . . before the Administration realizes that its [noninterventionist] policies have failed and must be changed." Also miffed were Europeans, whose governments plan to allocate oil during a crisis, rather than trusting in the free-market approach the Reagan Administration prefers. Said one Dutch official: "The whole idea is to keep emergencies from resulting in vastly higher oil prices. That can't work if the other 20 countries are trying to hold down prices and the U.S. allows the price to go through the ceiling."

A second study, completed in March by the Congressional Research Service, confirmed that the "ceiling" could go as high as $130 per bbl. in a crisis. If one had erupted in 1982, the study concluded, the gross national product of Western nations would have dipped by an additional 8%.

Reagan officials sought to deflect criticism by pointing out that the exercise made several unrealistic assumptions, especially underestimating the U.S. strategic reserve. Besides, insisted William Vaughan, Assistant Secretary for Emergency Preparedness, past evidence shows that Government interference only makes things worse. Many experts believe the 1973 shortages were caused by federal price controls and allocation policies then in effect.

The test was artificial in another way: major oil companies readily moved their fuel supplies "on paper," as directed by the IEA, but they disregarded regional differences in oil prices and profits. Yet U.S. oil executives have repeatedly argued that for competitive reasons free movement to all regions will not happen during a crisis, unless the Government devises a plan to ensure fair sharing.

However upsetting, the IEA exercise undoubtedly served as a reminder that while the U.S. may be in substantially better shape today to deal with an oil boycott or cutoff, more planning must be done to ensure balanced distribution of reserves and to meet emergency needs for fuel. It also reminded state officials that they cannot leave all that to the Federal Government. Said Christianson: "We've learned that it is very important for the states to have their own internal plans."

Warned Eli Bergman, executive director of Americans for Energy Independence, a public interest group: "We simply do not have an emergency preparedness system. Today's stark reality is that if an emergency occurred tomorrow, there would be chaos." -- By Kenneth M. Pierce. Reported by Jay Branegan/Washington, with other bureaus

With reporting by Jay Branegan/Washington This file is automatically generated by a robot program, so viewer discretion is required.