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SHORTAGES: A Time of Learning to Live with Less

22 minute read

Heavy with cargo, low-riding oil tankers bucked through the windblown South Atlantic last week on their way from the Persian Gulf to Philadelphia, Baltimore, Norfolk, New York and other U.S. ports. In a week or so, they will tie up at their destinations—and the U.S. will enter a sterner, more painful new era of energy shortages. These huge ships were the last to be loaded before the Arab states blocked all petroleum shipments to the U.S. in retaliation for American support of Israel. The Arab move is expected to diminish by a disruptive 18% or more the minimum flow of fuel that the nation needs to run its industries and farms, heat and light its homes, schools and offices, and keep its cars, trucks, buses and planes moving.

Responding to this threat, President Nixon scheduled an appearance on nationwide television on Sunday night. He planned to order Government restrictions on sales of gasoline and heating fuels at the wholesale level and to urge limitations on highway speeds and a coast-to-coast blackout of all unnecessary outdoor lighting. The U.S. this winter faces a big freeze. Not only will many people be colder than they wish, but they will also be frozen out of using as much power and fuel as they might desire.

Interior Secretary Rogers Morton reports that shortages of heavy residual oil for public utilities and factories will begin pinching by early December. By January, Morton adds, home heating oil and diesel and jet fuel will be scarce, and a substantial drying up of gasoline stocks can be expected by mid-February. Charles J. DiBona, the Deputy Director of Energy Policy, warns that the heavily industrialized Northeast, which uses a great deal more Arab oil than the rest of the country, could wind up trying to make do with only half of its normal supply of home heating oil and struggling through electric brownouts and blackouts.

In fact, energy will remain scarce even if the Arabs relax their embargo. John A. Love, President Nixon’s energy chief, predicts that it will be three to five years at best before world oil production and refinery capacity is increased enough to again bring energy supplies abreast of demand. The shortage, he said last week, will bring about “a change of approach to our life-style and economy,” and the nation can no longer continue doubling its demand for energy every ten or twelve years.

Cars Slow. Unprepared Americans —as well as Europeans, Japanese and other peoples—thus have to face up to the flinty prospect of learning to live with less energy and paying more for it. Last week the Labor Department announced that living costs jumped in October at an annual rate of 9.6%, largely because of the rising cost of fuel. The fuel crisis threatens to reduce consumer spending, cut next year’s expected real economic growth by one percentage point or more, raise unemployment by a percentage point or so, and lead the nation closer to a recession.

Reflecting the growing worries of Americans, the stock market fell more than 46 points in last week’s first two trading days, the worst back-to-back plunge since 1929. The market was probably overreacting, and it is badly oversold. Indeed, it rallied a bit at week’s end, but the Dow Jones Industrials closed the week at 854 — down 133 points in the past three weeks. Shares of General Motors reached a twelve-year low because gasoline shortages and price boosts will slow down car sales and lead to a shift away from the biggest, highest-profit cars. Shares of Walt Disney Productions, McDonald’s and other companies that depend on the motoring public were mauled. The anticipation of lower consumer spending sent down such blue chips as Eastman Kodak, Procter & Gamble, Goodyear and General Foods.

Beyond its effects on American pocketbooks, the energy emergency will also change American political life. To meet the shortage, the President, the Congress and the Governors will be given more and more power to regulate private business and the personal lives of Americans.

The growing authority of Government was underscored by the President’s new bundle of energy conservation measures. Using powers granted him under the Eagleton Amendment to the Economic Stabilization Act, which allows him to allocate fuels to wholesalers and distributors, the President ordered roughly a 20% reduction in the amount of heating oil that fuel companies can sell to distributors. The Government will advise — but still lacks the power to order — retailers on how to divide up the limited supply among their customers. Suggested allotments to households will be cut by as much as 20% depending on the region’s average temperatures; in addition a big reduction in allotments will be asked for factories, stores, offices, bowling alleys and the like. The reduction in fuel will require that thermostats in private homes be turned to an average 68°, and to 64° in offices, stores and factory buildings.

Again using powers granted under the Eagleton Amendment, the President ordered a 10% reduction from 1972 levels in the amount of gasoline that suppliers sell to wholesalers and retailers. Station owners will then be left to work out their own formulas for limiting the amount of gas that they will sell to their customers. In this way, the Administration aims to reduce private driving by 30%. The President also ordered a substantialslash in fuel sold to private and corporate planes.

Until Congress passes the Energy Emergency Bill, which has been ap proved by the Senate and is now before the House, the Administration lacks the authority to go much further in decreeing conservation regulations. Nonetheless, the President urged service stations to refuse to sell gas from 9 p.m. Saturday to midnight Sunday. The Administration claims that this step alone could reduce the nation’s driving by one quarter.

In addition, the President asked for a nationwide driving speed limit of 50 miles per hour for cars and 55 miles per hour for trucks and buses. He urged a blackout of all ornamental outdoor lighting except for business identification lighting. This would reduce energy usage in an amount equal to 30,000 bbls. of oil a day and ease the strain on supplies of dangerously low residual oil used by electric power companies.

The White House is considering asking Congress to enact a series of taxes that would include a heavy levy on gasoline, an excess use fee on electricity and natural gas consumed in homes, offices and factories, and an impost on auto engine horsepower that would wallop the big cars hardest. In addition, the Administration is considering putting in a national blue law to curtail business hours in stores and other businesses, and closing national parks to private cars.

Altogether, 21 Democratic Senators called on the Administration to begin gas rationing. That course runs directly counter to the position of Treasury Secretary George Shultz and other Administration free market apostles, who would prefer to curb gasoline consumption by hiking the price at the pump through taxes (see story page 38). Some Administration officials cling to the faint hope that the gasoline crisis can be managed without rationing or a 400-per-gal. added tax, but that will depend on how well the public responds to less severe restraints.

Nixon’s requests put great pressure on the House to pass the Energy Emergency Bill and allow him to make his entire program mandatory.

The bill would grant the President extensive powers to restrain energy consumption, including the authority to order outdoor advertising lights doused and set temperature standards for office buildings. Most important, it would give Nixon authority he does not have now to ration all forms of fuel bought by consumers. The bill faces tough sledding early this week when it reaches the House Commerce Committee, which is none too keen to invest the presidency with any more Executive clout than is necessary. Chairman Harley Staggers will seek to limit the authority that the Senate would give the President by making rationing orders subject to judicial review. Moreover, Staggers wants Congress to retain the right to overrule any presidential conservation order. Says a committee staffer: “There is a little fear here that we may be legislating an energy Tonkin Gulf resolution.”

For good or ill, many state and local authorities are hastening to prepare for the difficult period ahead. In fuel-famished New England, electric-power companies disclosed that they will have to reduce voltage by 5% between 4 p.m. and 8 p.m. If this does not suffice, blackouts would be put into effect in specific areas on a rotating basis. Despite forewarning, there will be an increased risk of crime and accidents. As in several other states, California’s State Energy Planning Council is considering a relaxation of state sulfur-emission controls to allow plants to burn high-polluting fuel.

That would thicken the smog in Southern California, already one of the most polluted areas in the nation. The commission has also recommended the reopening of the Santa Barbara Channel to oil drilling; a moratorium was clamped on drilling after the disastrous 1969 leak from a well in the channel badly despoiled beaches. Maine’s Governor Kenneth Curtis has ordered all state departments to stop work at 4 p.m., and Arkansas Governor Dale Bumpers took to the television pulpit to warn all residents that they must either exercise restraint or “the lights are going to go out —it is as simple as that.”

Christmas Dimout. The requested ban on outdoor illumination will crimp the plans of many communities and businesses to put up dazzling Christmas displays. Even before the President’s call for a blackout, Detroit Mayor Roman S. Gribbs had ordered a “dimout” of Christmas lighting, and has been severely criticized for it. Groused Councilman David Eberhard: “This town needs some joy. If we turn off the color, the sparkle, the life, then we’re a dead city.” To conserve electricity, the small town of Jefferson, Iowa, stilled the carillon bells that pealed hymns and patriotic music.

Said Walt Stidwell, one of the county supervisors: “For seven years we heard it every day and then we shut it off. You realize there’s something missing, something strange.”

Nothing, though, brought the message home for most Americans as did President Nixon’s earlier call to voluntarily cut back auto speeds to 50 m.p.h. That was a wrench to a nation as devoted as the U.S. is to horsepower and highway. Compliance has been spotty.

In Oklahoma, hundreds of citizens have telephoned on Governor David Hall’s hot line to complain that they were trying to hold at 50 m.p.h., but nobody else was. On a 120-mile trip along the New York Thruway, one driver cut his speed to the state’s new limit of 50—and counted 138 cars racing past him. (But the driver improved his mileage in his BMW from 20 to 25 miles per gallon.) In Washington, one of the few Western states that has imposed a new legal limit, Anthony Stokes, a Seattle builder, chased down a speeding state patrol car and demanded that the offending patrolman give himself a ticket. (He did not, but he was officially reprimanded by his chief.) In Massachusetts, a woman who was ticketed for going 48 m.p.h. in a 35-m.p.h. zone had a ready excuse: “The Governor said that we should be doing 50 now.”

Over the long Thanksgiving weekend, travelers often found gas stations closed. Some that were open raised prices. On the Black Horse Pike between Philadelphia and Atlantic City, a Shell station owner was retailing premium for 86.7¢ per gal. Presumably, some thought was given to all of this over the afternoon turkeys; on Thanksgiving night and Friday, drivers noted widespread obedience of new legal limits. Many people just kept off the highways altogether. Amtrak, the national passenger rail service, had to get “every available coach” out of mothballs to meet an unexpected flood of business.

Thriftiest Speed. Officers of bus lines have been claiming that their maximum efficient speed, below which they will use more gasoline per mile, is 60 to 65. Truckers say that their thriftiest speed is just under 60. Democratic Senator Birch Bayh of Indiana has been lobbying for an amendment to the Energy Emergency Bill that would exempt buses and trucks from the new limits. The Interstate Commerce Commission proposes to ease its “gateway” restrictions, which until now have often forced trucks to take circuitous routes instead of direct ones between some cities. Other truckers, though, will be hurt by the loosening of gateway rules, which are intended to prevent excessive competition on certain routes.

The restrictions on speed and the scarcity of gasoline will also hurt operators of ski resorts, many of which can be reached only by cars or a few buses.

The first snow fell last week on the slopes at Vail, Colo., but spirits were chilled when a big service station posted what is becoming a familiar sign: TEMPORARILY OUT OF GAS. New Hampshire ski operators complain that the 50-m.p.h. limits will add 25% to the driving time from the New York City market. Fully 60% of Florida’s winter visitors arrive by car.

Recently, 17% fewer cars than last year have been registering at the welcome stations along the state border.

The situation is baffling for millions of Americans. Says one Massachusetts school superintendent: “The energy crisis is like Watergate. We know something is wrong, but we don’t know quite what it is.” Still, people are trying to cope, not always without incident. When hall lights were darkened at Oregon’s Blue Mountain Community College, men students caused a minor stir at least twice by bumbling into the ladies’ room. A sign over the elevator in Tallahassee’s pollution-control office reads “Is this trip necessary? Are you injured or handicapped? If not, the stairs are behind you.” Now the elevator sits idle most of the day. Columbia, S.C., has done more than switch to smaller cars for its officials; last week it bought three bicycles for the city’s councilmen to use on short trips.

Mrs. Alfred Pauly of Belle Plaine, Minn., has found a way to retain heat in her concrete-block home; she wrapped it in transparent plastic, like a sandwich. Joe Conforte, proprietor of a licensed house of prostitution outside Reno, turned the reception-room thermostats down from 75° to 68° and ordered his 30 girls to wear pantsuits and gowns instead of bikinis. Seattle City Light Co., which is conducting a conservation drive among its customers, got some advice from a nursing-home resident in her 90s: “Tell the people to turn off their electric blankets and cuddle. It’s a lot more fun.”

Business Hurt. Last week, as the popularity of big cars skidded, General Motors took an extraordinary step. It ordered 16 of its assembly plants in the U.S. and Canada to shut down for the week beginning Dec. 17 to cut scheduled production by 79,000 cars, mainly large and intermediate models. It was the first time that G.M. has closed plants to reduce production since February 1970, when car sales were slumping badly. Normally G.M. turns out 120,000 to 130,000 units a week.

The market for large used cars is softening. Jerrold M. Axelrod, president of California’s Southwest Leasing Corp., reports that wholesale prices of used Cadillacs and other large models have dropped as much as 25% in recent weeks while prices of small used foreign cars and U.S. compacts have risen nearly 20%. G.M. and Ford are converting some assembly plants to the manufacture of smaller cars, and Chrysler is increasing its production of economical six-cylinder engines.

Heavy bunkering fuel for ships is rapidly evaporating, and the world’s ocean-borne traffic is headed for trouble. There could well be severe delays in delivery of cargoes as diverse as phosphate, zinc, chemicals, wheat and coffee. Ships unable to get fuel are laid up in ports from Hamburg to Singapore. The shortages have developed because of the Arabs’ reduction of oil shipments to Europe, where most of the “C” grade bunkering fuel is refined. On top of that, electrical generating companies, which use the same type of oil, have been stockpiling it as a hedge against shortages.

Most of the big oil companies stand to weather the crisis much better than their customers. The companies occupy a kind of no man’s land between the Arabs and the oil consumers, and their interests are divided between preserving their sources of supply at all costs and at the same time profitably satisfying their customers’ needs. All of the oil firms have an enormous stake in the cur rent crisis, particularly the international giants known as the Seven Sisters: Exxon, Royal Dutch/Shell, British Petroleum, Texaco, Mobil, Standard Oil of California (Chevron) and Gulf Oil.

Arab Takeovers. For years they were the absolute monarchs of the petroleumbusiness, holding undisputed sway over their rich empires from Tex as to Abu Dhabi and tightly controlling every phase of their global operations from wellhead to gas pump. In recent years, however, many oil-rich Arab nations have grown increasingly sophisticated and have moved to get a bigger piece of the profits from their resources. They have taken over the decision making on how much oil will be pumped and how much it will cost. Some countries, like Algeria, Libya, Iraq and Iran, which is not part of the Arab bloc, have gained controlling interest in the local subsidiaries of foreign firms.

That trend was markedly accelerated last week when Saudi Arabia demandedimmediate controlling interest of “more than” 51% in the mammoth Arabian American Oil Co. Aramco is owned jointly by Exxon (22.5%), Standard of California (22.5%), Texaco (22.5%), Mobil (7.5%), and the Saudi Arabian government, which only last January squeezed out 25% “participation” that it will pay for in cash.

Aramco is believed to have the high est profit margin of any oil firm in the world. Its known oil reserves of 90.1 billion bbl. are more than twice as large as those in the entire U.S. Before the Arab oil cutback, the company’s wells pumped 8.3 million bbl. a day, a total unmatched by any other company. The Saudis are almost certain to offer a relatively low,take-it-or-leave-it price for their increased share of Aramco’s billion-dollar holdings. Because they have no choice, the U.S. corporations are resigned to taking whatever they can get for their property. One all but inevitable consequence of the Saudis’ action will be to prompt similar takeovers of Western oil companies in Kuwait, Abu Dhabi and Qatar.

Most oil companies will benefit from rocketing petroleum prices, which have greatly increased the value of their deposits outside the Arab world. Yet prospects for individual firms vary greatly.

Whatever happens in the Middle East, Exxon, the world’s biggest oil company, has little to fear. It has extensive petroleum holdings in Venezuela, Australia and Canada. Exxon rigs are also exploring for oil in the North Sea, off the coasts of Malaysia and Newfoundland and in West Virginia. Exxon owns significant coal reserves in Illinois, Wyoming, Montana and North Dakota, and it mines and processes uranium for nuclear power plants.

Though Standard of California, Texaco and Mobil also have access to oil outside the Arab world, they are not nearly as widely dispersed as Exxon and will suffer some loss of profits from the cutbacks, embargoes and forced government buy-ins in the Middle East. Of all the Seven Sisters, Gulf is in the most trouble. Two-thirds of its production comes from Kuwait, where pressure is building for a state takeover of foreign operations. Best off are the American domestic companies: Phillips Petroleum, Atlantic Richfield, Standard of Ohio, Marathon Oil. Since they have few holdings in the Middle East, their property is not vulnerable to government seizures, yet the value of their reserves has suddenly grown immensely.

More Drilling. The price of non-Arab oil is already booming, and will soon propel American fuel costs even higher. Texas-based Coastal States Gas Corp. has agreed to buy crude oil from Nigeria’s state-owned petroleum company for $16.80 per bbl.—about two or three times the uncontrolled price of “new oil” produced in the U.S. Oilmen are rushing to find new deposits. Explorations have begun in Montana, and American companies are pressing a promising search in the jungles of the upper Amazon where the borders of Colombia, Ecuador and Peru meet.

The most viable energy source for the immediate future is coal, which constitutes 90% of known U.S. energy reserves but is used for only one-fifth of the nation’s energy. Coal production has fallen off, in part because of clean air standards, and it will be difficult to expand rapidly. One reason: new and reopened mines must be brought up to the standards of the 1969 Coal Mine Health and Safety Act, an expensive process.

While the U.S. gets ready for the severe energy shortage, Europe and Japan are already suffering from a more acute case of oil deficiency. The Arabs have been successfully playing off one nation against another in the hope of preventing any coordinated retaliatory sanctions. After Common Market foreign 2 ministers issued a self-consciously pro-Arab statement in Brussels, the Arabs last week exempted all Common Market members except The Netherlands from a further 5% cutback planned for December. West Germany sent envoys to Saudi Arabia in search of an arrangement that would allow oil destined for Germany to pass through embargoed Dutch ports. Other governments are preparing to ask for their own private deals when Saudi Arabia’s Oil Minister Ahmed Zaki Yamani swings through major European capitals next week. Reports are circulating in Europe, however, that the Arabs are allowing international oil companies to beat the boycott, at least partially. The companies are said to be taking Indonesian, Venezuelan and Nigerian oil that is destined for Canada and other nonembargoed countries and diverting it to Dutch refineries. To make up the difference, the firms are shipping extra amounts of Arab oil to their refineries in nonembargoed nations.

Despite Arab efforts to reward friends and penalize enemies, nearly every industrialized nation is suffering. Even friendly France is getting 5% less oil than last year because the Arabs have not only slapped embargoes on some nations but cut overall production as well. Britain, which is also on the Arabs’ privileged list, is receiving 15% less oil than in 1972. Sunday driving bans have spread across the Continent from Copenhagen to Calabria. The Italian government last week adopted emergency measures that forbid the sale of gasoline in jerry cans (to discourage widespread hoarding), put curfews on stores, restaurants, theaters and even television stations, and limit drivers on the autostrade to a rather un-Italian 75 m.p.h. Auto sales in West Germany are down 30% from last year’s rate. Happily, there has also been a decline in accidents.

No nation has been hit harder than Japan, which imports nearly 100% of its oil, including 43% from Arab nations. Kowtowing to Arab demands, the Japanese cabinet last week called on Israel to withdraw from Arab territories that were occupied during the 1967 war, and threatened to reconsider its relations with Israel on the basis of “future developments.” By government edict, neon lights are being turned off earlier along Tokyo’s gaudy Ginza and the main streets of many other cities, store hours have been reduced and TV broadcasting curtailed. Japanese economists, many of whom had been predicting at least a 10% expansion for 1974, now say that the energy crisis will lead to zero economic growth in the next few months.

Among Japanese consumers, many of whom recall the severe shortages of the war, the “oil shokku” has also instilled an edginess bordering on hysteria. A casual remark by one shopper to another in Yokkaichi to the effect that oil and electricity were needed in the sugar-refining industry touched off a sugar-buying panic that spread across the whole country last week. Housewives are still trying to lay in supplies of toilet paper after a rumor spread about a forthcoming dearth of that staple. A woman was trampled to death in a toilet-paper stampede in Osaka.

Visible Targets. If the Arabs persist in their embargo, the emergency will bite Americans deeply in a month or so. Old routines in work and play will be disrupted, traveling will become a chore and the novelty of spartan indoor temperatures and reduced lighting will wear thin. Then the public will probably begin a search for scapegoats. The Administration will be high on everyone’s list for its failure to foresee and prepare for the crisis. Oil companies will be another target of criticism, because they are so visible and profitable, and calls will rise for increased Government regulation of the industry.

As resentment against the Arabs rises, there will be swelling demands for countermeasures. The U.S. commitment to Israel also will be sorely tested, as the State Department’s large pro-Arab contingent, the oil companies and others push for a policy more congenial to the sheiks. Says Professor William Griffith, a Middle East specialist at M.I.T.: “People are not going to urge that we abandon Israel. But you’ll hear more and more statements to the effect that the U.S. should moderate its Middle East policy and should pressure Israel to abandon the conquered territories.”

In the meantime, the Administration still faces some tough decisions. Even if the White House moved tomorrow to adopt rationing, it would take an estimated three to four months to set a nationwide program in motion. If taxes are to be used to cut energy demand, the White House will have to begin quickly to sell that idea to openly reluctant members of Congress. President Nixon’s belated switch away from voluntarism toward executive action is a welcome start in curbing consumption. The question is whether the Government’s efforts are timely and tough enough to give the nation at least an even chance of getting through the winter without a severe economic setback and widespread personal hardship.

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