The Iranian oil cutoff does not have the potential to damage the U.S. economy nearly as much as the oil embargo and accompanying price increases did in 1973 -- unless it somehow pushes world oil prices all the way to $25 a barrel.
None of the Carter administration's top officials believes oil prices will increase by anything like that much. As a result, they are not readying either new tax or monetary policy proposals to offset the Iranian impact.
Oil-cartel prices rose 5 percent in January and currently stand at $13.34 a barrel.
Energy Secretary James R. Schlesinger has asserted that the world could face a crisis equal to the 1973 Arab oil embargo unless Iran began exporting enough oil to make up the net loss of 2 million barrels a day in world exports.
The "crisis" most Americans remember vividly was those interminable waits in gasoline station lines. But neither the waiting nor the shortage of oil did the damage. It was the siphoning off of consumer buying power by the huge price increases.
In today's dollars, oil prices went up by $11.85 a barrel between mid-1973 and mid-1974. Even with tight controls on domestic crude prices, the average price in the United States rose $7.50 a barrel, again in 1979 dollars.
Those increases, in today's terms, were the equivalent of roughly a $45 billion tax increase and were a major factor in causing the severe recession at the end of 1974.
On the other hand, the actual embargo caused a 12 percent drop in total U.S. oil supplies in the first quarter of 1974 and only a 3 percent cut in the second quarter. By June, it was all over. And as it turned out, oil inventories worldwide actually went up, not down, while the embargo was in effect.
The Iranian shutdown, in contrast, will reduce U.S. oil imports by about 500,000 barrels a day, according to Schlesinger. That is equal to about 2 1/2 percent of U.S. demand of about 19 million barrels a day. Some oil experts think the shortage is likely to be higher, perhaps 600,000 barrels a day, however.
If Iran's overall 2 million-barrel-a-day shortage were shared on the basis of world consumption patterns rather than imports, the U.S. "share" would be about 750,000 barrels a day, or just over 4 percent of demand.
If the other oil-exporting nations that have increased their output because of the halt in Iranian production, such as Saudi Arabia and Nigeria, fell back to earlier levels, then the U.S. shortage could reach 1.4 million barrels a day, or about 7 percent of demand.
This week's price increases by Abu Dhabi and Qatar essentially have had the effect of advancing quarterly jumps that were already scheduled. If all the members of the Organization of Petroleum Exporting Countries move up their increases it will have a direct impact on the consumer price index equal to 0.3 or 0.4 percentage points. The administration has forecast a 7.4 percent increase in the CPI during 1979.
Thus the impact of the new oil price hikes is a far cry from the approximately 3 1/2 full percentage points the CPI went up as a result of the 1973-74 increases.
The new across-the-board increases will mean an added $3.5 billion in import costs this year for the United States.
Of course, if the planned quarterly increases, which add up to about another 9 percent or 10 percent are still put into effect by the fourth quarter, on top of the increases taking place now, there would be another 0.4 or 0.5 percentage point impact on the CPI.
Should this happen, the highest OPEC price by the fourth quarter would still be less than $16 a barrel, an awfully long way from $25 in terms of economic impact.
But there is potentially a major problem in dealing with the actual shortage. The demand for most oil products is very insensitive to changes in price in the short run. Moreover, because of controls on refiners' profit margins and on consumer prices of gasoline and jet fuel, as well as other rigidities caused by controlling domestic crude prices, the market cannot respond very fully to any shortage.
So Schlesinger's Department of Energy has to figure out how to administer a shortage that probably could be handled by the market except for the various controls, say some economists.
Since for political reasons the controls cannot be dumped, the administration is seeking the best way to allocate whatever shortage there is in the least disruptive way.
The administration is examining a variety of options, including Sunday gasoline station closings, odd and even day sales, and so forth. If there were any way to enforce a rule that large office buildings have their thermostats set at 65 degrees, that alone would cut demand by 400,000 barrels a day, according to one estimate.
In the next several weeks, if the Iranian situation does not settle down, there is a possibility that American drivers could do again what they did in 1974: try to keep their gas tanks topped up at all times.
Adding an average of 4 gallons more to the tanks in about 100 million cars over the course of one month would be equivalent to a one-time increase in demand of about 300,000 barrels a day.
That is just a special form of a larger, probably key, part of managing the shortage: inventories.
In early 1973, well before the embargo, the United States was experiencing some spot oil-product shortages, primarily because of the effect of oil price controls on the oil industry. Some energy economists think the 800 million barrels of crude and products in inventory then is a good measure of how much oil is needed to keep the U.S. distribution system essentially fully supplied.
Today there are nearly 1.2 billion barrels of crude and products in U.S. inventories. That means there is a cushion of more than 300 million barrels that could be drawn down to offset the Iranian halt in exports -- if DOE can devise any allocation rules to ensure inventories are used instead of hoarded.
Meanwhile, the entire situation has vastly complicated the question of whether to begin to decontrol domestic crude prices at the end of May when President Carter will have that power.