Energy Markets Limit the Hormuz Shock

The world’s supply of fuel is much more diversified than it was during the energy crises of the 1970s

By Daniel Yergin. One of the world's leading experts on the energy industry, he is vice chairman of S&P Global and author of “The Prize” and “The New Map.” Excerpts:

"Today there is much more variety in world oil and natural gas than during the 1970s. The shale revolution has transformed the U.S. from the world’s largest importer of oil to the world’s largest producer of oil and natural gas and largest exporter of liquefied natural gas.

Overall, the Western Hemisphere now produces more oil than the Middle East did before the crisis. Canada is the world’s fourth-largest oil producer. Brazil produces four times as much oil as Venezuela; and in Guyana, where production began only seven years ago, output almost equals Venezuela’s. In Argentina’s Vaca Muerta region, shale oil production has grown sixfold since 2020. The current disruption will propel more oil and gas investment in the Western Hemisphere and Africa."

"Saudi Arabia built variety in the form of a pipeline system that now moves 7 million barrels of oil a day west to the Red Sea. Abu Dhabi built a pipeline looping around the Strait of Hormuz and plans to double capacity by 2027. France, which once depended on oil for electric generation, now relies mainly on nuclear. Japan led the development of the LNG industry to push oil out of its electric generation."

"Previous crises showed that markets themselves also contribute to energy security. They adjust faster than governments intervening to manage markets, which can make matters worse.

The U.S. gasoline lines of the 1970s weren’t the result of the crises themselves. Rather they were manufactured by government policies: price controls and clumsy, bureaucratic allocation systems that dispatched gasoline to well-supplied regions and yanked it from regions in short supply."

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