US economy not as dependent on Middle East oil, but this may not mean less conflict, according to FT opinion piece
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Combustion Industry News Editor
A Financial Times article has looked at the effect of possible Middle-East conflict on the US economy, with a couple of interesting take-away points. The 1973 and 1979 oil crises shaped economic thinking and Middle-East politics over the last 40-odd years, with strategists keen to avoid their negative effects. The first crisis occurred after OPEC instituted an oil embargo against the US and other countries in response to the Yom Kippur War; prices in those countries rose by more than 400%, supplies in some areas ran out, and the economies were damaged, resulting in political fall-out. With the 1973 crisis still in people’s minds, the 1979 oil crisis turned on psychology more than tangible realities – the Iranian revolution meant a 4% decrease in world oil output, but oil prices doubled, and once again there was political fall-out. Forty years later, however, the picture has significantly changed, at least for the US – the shale oil revolution has steadily decreased its reliance on supplies of foreign oil, to the point that last year, the country became a net oil exporter. But more than that is at play. An index calculated by Deutsche Bank has shown that compared to 1973, the relationship between oil products supplied (either imported or domestically produced) to US economic output has today fallen to a third of what it was. Not only are oil imports less vital to the US economy because it is producing its own, but oil as a whole is relatively less important, as other forms of energy take hold, energy efficiency improves, and other types of productivity – the ‘knowledge economy’ – rise as a portion of total economic output. (Manufacturing has fallen from 28% of the economy in the 1960s to 12% now.) This may partly explain why, after the US assassinated Iranian general Qassem Soleimani on 3 January, the oil price initially jumped by 5%, but has since fallen below pre-assassination levels, though this would also be explained by tensions not (yet, at least) escalating into a wider conflict. As the Financial Times suggests, it may also mean that US presidents may in the future be less concerned with peace in the Middle East.