Venezuela and Cuba

Oil Shortages? It’s Happened Before. And It Will Happen Again.

Ronald R. Cooke, The Cultural Economist, www.tce.name

Detensive - The opposite of intensive. We currently live in an energy intensive economy (especially in America). We use oil with abandon because it is cheap and readily available. When oil becomes more expensive and less available, we will have to reduce our consumption. We will move to an energy detensive economy, where we are much more aware of our energy consumption.

Introduction

We love our cars, our pickup trucks, and our SUVs. They present us with the possible. Freedom of movement. Personal mobility. We are no longer confined by the boundaries of local geography. The open road calls. Owning a car has become a rite of passage to personal independence. We have arrived.

And we built our national culture around this concept of personal mobility. It sets the parameters of our space and time, enables the range of daily activity, and expands the universe of opportunity. Approximately 75 percent of America's 135 million workers commute to work. Alone. One person to a vehicle. Only 12 percent of us bother to car pool. Public transportation, once the primary means of personal mobility, now accounts for under 5 percent of commuter traffic – and this mostly in the highly populated North East corridor. Of the remaining commuters, 3 percent walked to work and just over one percent rode a bicycle or motor cycle or climbed into a cab. The rest of us don't commute at all. We work from home.

Our average travel time to work is 25 minutes. But that statistic doesn't mean much to the 10 million Americans whose daily commute to work takes an hour or more, or the millions of Americans who find themselves fighting frustrating freeway gridlock almost every day.

So here we are. The supreme irony.

We have become the captives of our freedom.

Every workday, over 117 million of us get into our vehicles to begin the commuting ritual all over again. Doomed conformists condemned to bear the stress and aggravation of congested freeways.

But wait. Aren't we overlooking something? See that river of vehicles? Millions of engines burning gasoline and diesel fuels. Clouds of hydrocarbon waste. We consumed - on average - over 555 million gallons each and every day in 2005. More than 4.8 billion barrels of motor fuel in a year.[i] Poof. Gone forever. Can we assume we will always have an unlimited supply of affordable fuels to sustain our existing means of personal mobility?

No. Of course not. Shortages are coming. I cannot tell you when. There are far too many variables. But the ominous signs are everywhere. Fuel shortages. Higher prices.

Our future.

It's Happened in America

Yes. Here in the United States. Three times in my lifetime. Ration books in 1942. Long lines at the gas station in 1973. Tension in 1979.

WW2

Although very young, I was acutely aware of WW2 gasoline shortages. I was in charge of the ration stamps. Precious little pieces of paper that bestow the freedom of personal transportation. I hid them in a special place. Counted each one with care. Each coupon was good for a little more of the precious fluid. Automobile owners counted the days until the next issue of stamps were scheduled to arrive. The distance of every trip was carefully calculated. They knew to the drop how much gasoline was left in the tank. And then a crucial decision. Is this trip really necessary?

I do not remember why we got gasoline ration stamps. We did not have a car. But it was fortunate for our family we did get them. They could be traded for ration coupons that allowed us to buy other goods we needed in a land of shortages: food, shoes, fuel oil, and so on. It was very sad. And frightening. More than once, someone would knock at our door, pleading for a few pieces of paper.

And of course with rationing came a sleazy black market in stolen and counterfeit stamps, competition among people of influence for the special privilege of extra rations, and “back room” deals for allocations of gasoline. All very ugly.

GASOLINE - A, B and C coupons each are worth three gallons. T coupons are good for five gallons each. The A coupons numbered 5 must last through July 21, which is double the time of previous ration periods. B and C books bear own expiration dates. Information on price control may be obtained at the O. P. A. offices in the Empire State Building, Chickering 4-7300.

We were all very glad when WW2 ended.

1973 Oil Crisis

Egypt and Syria jointly attacked Israel on October 6, 1973, on Yom Kippur, the holiest day of the Jewish calendar. Other Arab states contributed troops and financial support. When America came to Israel’s rescue, Saudi Arabia then led the Arab world in an oil embargo imposed on the United States and other western nations.

Oil prices increased by 251 percent. The current rate of inflation soared to 6.2 percent in 1973, 10.97 percent in 1974, and 9.14 percent in 1975. Unemployment reached 8.5 percent in 1975. During this period, American oil consumption dropped by more than 4 percent, and oil consumption efficiency increased by over 20 percent.

Congress took desperate measures. It set a maximum highway speed limit of 55 mph, ordered all new cars to have fuel economy stickers, put daylight savings time into effect for the whole year, invoked a car fuel economy standard of 27.5 mpg, and gave tax credits for the development or use of alternative forms of energy. President Nixon ordered the Department of Defense to stockpile oil reserves, had rationing books printed (never used), called for voluntary carpooling, and formed the Department of Energy.

Many gas stations closed on Sundays, refused to sell to customers they did not know, and restricted fuel sales to 10 gallons per vehicle. They often had no gasoline. Motorists waited in long lines for a few gallons of the precious fluid. We turned down our thermostats, burned more wood and coal, purchased fuel efficient cars (mostly Japanese), and carpooled. The airline industry canceled flights and raised the ticket prices.

The oil embargo triggered a worldwide recession. OPEC was now in a position to manipulate world oil prices.

1979 Oil Crisis

President Jimmy Carter appeared on national television in 1977 to declare America’s dependency on foreign oil to be “the moral equivalent of war”. Few listened. Certainly not Congress.

That left America vulnerable – again – when the Shah of Iran was deposed in 1979. Iranian oil production came to a standstill. Oil production was further reduced when war erupted between Iraq and Iran. Shortages pushed oil prices up 162 percent by 1980, and the price of gasoline doubled by 1981. Inflation exceeded 10 percent per year for three years in a row. By 1983, unemployment had reached 9.6 percent.

Tens of thousands of Americans waited – sometimes vainly – in long lines at the filling station. There were shootings, riots and strikes. Congress reinstated controls on gasoline consumption. Some areas imposed an odd/even plan on gasoline purchases.

It took until 1983 to get inflation under control. Unemployment finally declined to 5.5 percent in 1988.

It Happened in Cuba and Venezuela

Two nations, Cuba (1991), and Venezuela (2002) have gone through the chaos of oil shortages. In both cases, local meat production and locally grown fruits and vegetables suddenly became very important. Local community neighborhoods learned greater self-sufficiency. They had to change their lifestyle in order to get by with less energy. And they were forced to make these changes in a hurry.

Cuba 1991

Fidel Castro called it Período especial en tiempo de paz - "A Special Period in a Time of Peace". It began in 1991, after the collapse of the Soviet Union. It was a period of economic and cultural crisis. Cuba suddenly found that Russia was no longer able to supply it with the economic subsidies and oil products Cuba needed to survive. Oil imports dropped by approximately 53 percent, crippling Cuba's oil-fired electric power system. Refrigeration and air conditioning failed. Chronic power shortages crippled transportation, agriculture, and industrial production. Estimated GDP declined by 33 percent, real wages fell, and unemployment soared. There were food shortages.[ii] It has been reported that Cuban adults lost an average of 20 pounds.

The Cuban people adapted to the crisis. From 1991 to 1995, they introduced locally grown sustainable agriculture, overhauled their economy, changed their diet, and adopted new lifestyles. They innovated new modes of mass transit. Authorities enforced car-pooling. Locally grown fresh vegetable production increased 10 fold. Annual population growth declined from .8 to .4 percent. Eventually, GDP growth resumed. Although the Cuban people still have severe economic problems, the "Special Period" got them through their initial crisis.[iii]

Although Castro runs Cuba like a socialist dictatorship, he did not use coercion to meet the challenges of Cuba's "Peak Oil" crisis. Instead, he loosened the reins on private enterprise. He told his people that things would be very hard. The Cuban people were forced to find their own solutions. They quickly figured out how to get by with less energy.

In some ways, Cuba serves as a model for an energy detensive economy. Cuba has ordered 8,000 high mileage buses from China as well as 12 locomotives to build a rail system. They are continuing the development of a surface mass transit system with trains to travel the length of the island, replacing energy intensive air travel. In January, 2006 Castro announced a plan to decentralize Cuba’s power system, gradually replacing five decrepit thermoelectric plants with smaller, regional plants supplemented by solar and wind power. He also said Cuba had ordered more than 4,000 diesel and oil generators, with more than 3,000 already delivered. Distributed local power systems are being implemented. Organic farms and urban gardens. A home grown mass transportation system. Decentralization and localization. That’s the plan. Conserve, cutback, curtail, innovate and change. Emphasis on cooperation rather than competition.[iv]

Venezuela 2002

In less than 12 months, Venezuela went through a political crisis and a devastating economic crisis. The coup d’etat of April 11, 2002 was followed by an oil industry lockout and strike that lasted from December 2002 through February, 2003. At the time, Venezuela depended on oil for 80% of its export earnings, 50% of its government revenue, and 30% of its GNP. Unfortunately, events drove oil production down from approximately 3.2 million barrels per day in October, 2002 to a low of 25 thousand barrels per day in January of 2003. Production did not recover until May 2003.

Unemployment increased from 11 percent in 2001 to over 20 percent in March, 2003. Inflation rose from 12.5 percent in 2001 to 30 percent in 2002. The market for personal services was decimated. Customers had neither transportation nor cash. The banking system limited withdrawals. Small businesses were forced to close. Fuel deliveries had to be protected by the National Guard. Consumers waited for hours to fuel their cars and trucks. The availability of air travel evaporated. Caracas became a ghost town. Only a few abandoned cars could be found on previously busy 8 lane freeways. Price regulation was introduced to prevent profiteering. There was a shortage of food in urban areas. Thousands of farmers responded by bringing locally produced meat, fruit and vegetables into the City.

This – in a nation with plenty of oil.

The resumption of oil production brought about economic relief and life began to improve by the fall of 2003.

Conclusion

There are four concepts that thread their way through all five of these oil shortages.

1. There was plenty of oil in the ground. These oil shortages had nothing to do with world oil reserves or potential production. They happened anyway.[v]

2. All five oil shortages were related, or directly caused, by cultural conflict. A world war. Two regional wars. Cold war isolation. Internal political and labor strife. Above ground factors caused a decline in oil production.

3. All five oil shortages had a chaotic impact on the affected national economies. All had higher rates of inflation. With the exception of WW2, all produced higher rates of unemployment. Real GDP growth was erratic.

4. Government could not avert the economic or cultural impact of an oil shortage. People had to fend for themselves. Solve their own problems. Adjust their own lifestyles. We had to solve our personal transportation problems, find new jobs, scramble for food resources, learn to conserve fuels, improve energy efficiency, and so on. Government regulation and welfare could only provide a minimum of support.

On the other hand, we have to be impressed by the resiliency of the human spirit. In every case, we did adjust, we did innovate, we did take the initiative, and we did survive.

So. Here we are.

Every week, thousands of trucks ply our freeway system, delivering vital goods and services to our communities. They all run on fuels derived from oil. Every day, thousands upon thousands of containers move over our docks, millions of passengers land at our airports, and multiple thousands of rail freight cars move through our nation. All powered by oil. Every workday roads are paved, roofs are replaced, tires are changed, prescriptions are filled, lawns are fertilized, bugs are sprayed, and garments are purchased. All of these transactions depend on the unlimited availability of low cost oil.

We are a voracious consumer of energy. We have developed an energy intensive economy and lifestyle. Our culture assumes energy will always be inexpensive and readily available. Our values, laws, regulations, social customs, ambitions, and social progress have been inexorably linked the ever-increasing consumption of coal, oil and natural gas. Material abundance and population growth mirror energy consumption. The freedom of personal mobility is ingrained into our psyche. These things, we believe, are a natural right.

They are not.

America is vulnerable to an energy shortage. We almost had another one in 2005. And eventually a chronic downtrend in energy consumption will occur because it is no longer affordable or readily available. We are going to learn to live in an energy detensive world. Our energy intensive lifestyle will give way to a daily routine that consumes less energy.

Detensive. The word of our future.