How to avoid and WI no 1973 Oil Shock

[Alexpira]

The 1973 oil shock was the definitive end to the Post-War Boom (which was already fading by the late 60s - early 70s), rocking the Western economies and making the 1970s an extremely tricky decade on economic terms (recession and then staginflation).
How such oil shock could have been avoided (POD between 1945 - 1973 to avoid more ABS situations as "do not use petroleum as the major energy souce") and, more interesting, what would be the changes to a world of perpetual cheap oil (or at least if the increases delayed for some years)?

 

[thatsbunkers]

Israel keeps its early socialist tradition and aligns with the USSR. The US doesn’t support Israel so the Arab countries don’t embargo the west

 

[Alexpira]

No other ideas? A no-oil shock or at least a delayed crisis can be a major changer to OTL. Imagine a 1970s without stagflation, maybe no Reagan, no Japanese automakers crushing the US car industry...

 

[LHB]

Won't happen. The causes of the Oil Shock go all the way back to the concessions system used by the oil majors which starts all the way in the 1890s. By 1965 clashes between oil exporters and oil majors over where the revenues were going inspired the founding of OPEC. From there the pressure to force a change by mass action only went up especially with the fears of internal threats in the form of the threat posed to Arab monarchies by secular Arab nationalists who didn't like how cozy their rulers were with Western powers. Even if the October/Yom Kippur War of 1973 doesn't happen sooner or later there's going to be a flash point where OPEC's members decide playing hardball and bloody knuckles would work better with the Seven Sisters than negotiating. They already knew they had the upper hand with Gaddafi's nationalization of Libyan oil, Algeria and Iraq's similar actions and the 1971 Tehran Agreement where OPEC members got greater concessions in pricing from the oil majors than was previously expected so sooner or later someone's going to force the issue with large-scale nationalizations followed by jacking up the price to fund development.

The only way you're going to avert the Oil Shock is with the Tunguska Event hitting Moscow, London or New York. By the mid 1960s a collision between oil exporting powers and the oil majors was guaranteed thanks to decisions made several decades previously. Said decisions are unlikely to be changed in the moment due to both how the oil industry operated in the time the concessions were negotiated and the colonial dynamic that saw said oil majors backed up by the military power of Britain, the Netherlands and the United States.

 

[GeographyDude]

Israel keeps its early socialist tradition and aligns with the USSR. . .

Okay, I can roll with that, still a prosperous Israel, although perhaps not quite as much. And maybe the Soviets lean on their client states like Egypt to at least not attack.

 

[Dunning Kruger]

US oil production peaked in 1970 so even without the Oil Embargo I think you will see a sharp rise in oil prices as it takes bit for new sources of production (Gulf of Mexico, North Sea, Alaska) to be ramped up. Also, the US leaving the gold standard and LBJ's "Guns AND Butter" fiscal policies leave the US set up for a inflationary trend throughout the decade.

 

[GeographyDude]

. . . the US leaving the gold standard . . .

I think I prefer free-floating currency exchange rates. In other words, I think I support the 1971 decisions of Treasury Secretary John Connally, who I think had the full support of Pres. Nixon. It involved at least two or three other important aspects besides just leaving the gold standard.

 

[Dunning Kruger]

I think I prefer free-floating currency exchange rates. In other words, I think I support the 1971 decisions of Treasury Secretary John Connally, who I think had the full support of Pres. Nixon. It involved at least two or three other important aspects besides just leaving the gold standard.

I favor free floating as well. However, I believe it probably facilitated conditions that were pro-inflationary.

 

[LHB]

I think I prefer free-floating currency exchange rates. In other words, I think I support the 1971 decisions of Treasury Secretary John Connally, who I think had the full support of Pres. Nixon. It involved at least two or three other important aspects besides just leaving the gold standard.

Regardless of your opinion of these policies the way they were implemented and put in motion in the first place caused some serious economic panic as is present in period literature on the topic. Prior to the 1973 Oil Shock the 1971 Nixon Shock was seen as the most serious act of economic disruption since 1929 and the collapse of Bretton Woods was greeted as a potentially chaotic, dangerous time rather than some sort of improvement. The US leaving the Bretton Woods system (which wasn't quite the gold standard though is often confused with it) was also due to larger trends in global economics brought on by the reconstruction of Europe and Japan as well as the industrialization of Latin America and Africa.

Either way a Soviet-aligned Israel isn't going to avert a potential oil shock seeing as the deeper roots of the conflict long predate the founding of Israel. All that does is change the conditions of when it happens rather than avert it. You might see some delay but it won't be by much.

 

[Mad Bad Rabbit]

(I assume Yom Kippur going WWIII and making oil prices moot is not allowed)

What about earlier fracking? The technology was there in the 1940s but not used b/c of cheap imports. What if the govt. subsidizes it so we have petroleum independence?

 

[marathag]

US oil production peaked in 1970 so even without the Oil Embargo I think you will see a sharp rise in oil prices as it takes bit for new sources of production (Gulf of Mexico, North Sea, Alaska) to be ramped up. Also, the US leaving the gold standard and LBJ's "Guns AND Butter" fiscal policies leave the US set up for a inflationary trend throughout the decade.

OPEC tried embargo in 1967, but didn't take, as US was able to pump enough to make that ineffective, so didn't last long.
1973, the US couldn't do that anymore.

 

[LHB]

(I assume Yom Kippur going WWIII and making oil prices moot is not allowed)

What about earlier fracking? The technology was there in the 1940s but not used b/c of cheap imports. What if the govt. subsidizes it so we have petroleum independence?

The US was the world's largest oil producer & exporter until the late 1960s. There's no incentive for fracking in a US that's totally energy independent & then some.

 

[GeographyDude]

I favor free floating as well. However, I believe it probably facilitated conditions that were pro-inflationary.

I tend to think so, too.

The early '70s stagflation had multiple causes and is harder to pin down.

The stagflation following the '73 and '79 surges in the price of oil is much more straightforward. The supply curve for the overall economy moves inward.
https://books.google.com/books?id=q...ce of crude oil. American consumers"&f=false

 

[GeographyDude]

Stagflation following '73 and '79 surges in the price of oil.

So, why didn't the news media pick up on this?

Well, frankly, reporters and media types tend to be mathematically illiterate. And even worse, they believe they're not good at math, and so they don't make the good 'ol college try of diving in and trying to understand. For example, they could have kept insisting that economists put it in plain English until it was understandable.

And plus, the great "mystery" of stagflation makes for a great story! Just like you don't look a gift horse in the mouth. You don't question a great story too much or else it might evaporate.

 

[kernals12]

No World War I. The Ottomans keep control of the Middle East. No Holocaust means no Israel. Although, the oil crisis' effects are overstated. By 1973, Western Europe and Japan had caught up to the technological frontier and the spectacular growth of the 50s and 60s was not going to continue forever. The biggest thing that happened in 1973 was a decrease in productivity growth in the US, although there's no proof that the timing was anything more than coincidence.

One more thing, people overstate the cheapness of oil before 1973, which in real terms cost about as much as it did in the glut period between 1986 and 2003.

 

[kernals12]

The US was the world's largest oil producer & exporter until the late 1960s. There's no incentive for fracking in a US that's totally energy independent & then some.

No it wasn't, the US started importing oil in 1948.

 

[kernals12]

No other ideas? A no-oil shock or at least a delayed crisis can be a major changer to OTL. Imagine a 1970s without stagflation, maybe no Reagan, no Japanese automakers crushing the US car industry...

Stagflation was bound to happen thanks to the inflationary policies of the late 60s and the end of the gold standard as well as the mysterious drop in productivity growth in 1973. And the rise of japanese cars in the 70s is overstated. The Big 3 controlled 70% of the market as late as 1996.

 

[LHB]

No it wasn't, the US started importing oil in 1948.

Yes it was. The US was the single largest oil producer in the world until 1968.

 

[kernals12]

Yes it was. The US was the single largest oil producer in the world until 1968.

You said they were the largest exporter until the late 60s.

 

[GeographyDude]

. . . the way they were implemented [1971 changes put in place by Treasury Secretary John Connally, supported by Nixon administration] and put in motion in the first place caused some serious economic panic as is present in period literature on the topic. Prior to the 1973 Oil Shock the 1971 Nixon Shock was seen as the most serious act of economic disruption since 1929 and the collapse of Bretton Woods was greeted as a potentially chaotic, dangerous time rather than some sort of improvement. . .

But if we look at the period literature for any period . . .

I mean, look at newspapers and evening news broadcasts for any week and it will look like the most pivotal week in history of modern democracies and advanced economies!