The EU is actively discussing implementation of the oil embargo against Russia, which is considered to be the ultimate economic weapon to undermine the Kremlin regime. Decreasing the dependence on Russian gas imports is also on the agenda. The US and the UK have already made this step and it is time for the EU to find political will as well.

While the EU member states are still divided over the issue, as was the case with Nord Stream 2 before the war, just talking about embargo without imposing it plays into the hand of Moscow, which still enjoys higher profits resulting from soaring energy prices. These profits can be used to further feed cruel Russian war, inflicting suffering and pain upon millions of Ukrainians. Thus, if action is to be taken, it has to be taken immediately!

As a matter of fact, such a move would not be the first one in the history of the West. The two oil crises of 1973 and 1979 with market shocks related to them are among one of the most important events in modern economic history. While one may consider it a disaster for the Western economies and markets, such perception overlooks some important long-term consequences which made Europe and the U.S. more resilient to energy supply disruptions.

Political background. The 1973 oil embargo was targeted primarily at the Western countries that supported Israel in the Yom Kippur War. By imposing embargo, the Arab countries were making political statement in the first place. Now, the collective West also has an opportunity to take a proactive position and effectively signal Russia that its actions are unacceptable.

Overlooked interdependence. The 1973 oil embargo clearly showed the vulnerabilities of the Western countries as oil importers and gave impetus to diversification, greater investment in exploration and stockpiling of strategic reserves. The negative impact of reliance on a single or dominant source of supply (Russia) also becomes more and more clear now. This makes the price of embargo higher, yet it’s the price which has to be paid to contain the aggressor and prevent further war crimes in Ukraine.

Disparity of interests. Both in 1973 and now, Europe is far more dependent on external energy supplies than the U.S. This fact determines the more cautious position of the EU in the issue of the embargo, now and then. This cautiousness shouldn’t be the obstacle to joint action.

Which valuable lessons can be learned?

Don’t be afraid of price shocks higher prices commercialized the upstream projects, which were deemed economically irrelevant earlier: oil&gas production in the North Sea, Alaska are among the most prominent cases; higher prices commercialized important technologies in oil production that became commonplace afterwards, including floating production storage and offloading concept, remotely operated underwater vehicles (ROVs) etc., which contributed to the commercialization of deepwater offshore drilling; oil shocks fostered the transition from irrational use of energy to the concept of energy conservation in the U.S. (particularly in the automobile industry); energy crises were among the factors to pave the way to modern environmentalist movements, development of renewable energy as well as to different energy consumption patterns.

1. The 1973 oil embargo and the 1979 crisis are generally associated with surge in oil prices, pictures of eternal lines to gas stations, consumption restrictions (odd–even rationing in the U.S., Sunday bans for driving in Europe). Yet they had more far-reaching consequences:

higher prices commercialized the upstream projects, which were deemed economically irrelevant earlier: oil&gas production in the North Sea, Alaska are among the most prominent cases;
higher prices commercialized important technologies in oil production that became commonplace afterwards, including floating production storage and offloading concept, remotely operated underwater vehicles (ROVs) etc., which contributed to the commercialization of deepwater offshore drilling;
oil shocks fostered the transition from irrational use of energy to the concept of energy conservation in the U.S. (particularly in the automobile industry);
energy crises were among the factors to pave the way to modern environmentalist movements, development of renewable energy as well as to different energy consumption patterns.

In general, the 1973 and 1979 oil crises provided impetus to the start of energy transition, while the possible 2022 embargo on Russia may be impetus to complete this turn. Even despite short-term switching back to coal as a back-up option among fossil fuels, development of low and zerocarbon energy technologies would accelerate the green transition pursued by Western countries on the way to climate neutrality. Focusing on real-time market/pricing consequences, obviously taking place even now (as market reacts to the official statements), one tends to underplay long term positive effects.

2. Unity is the key

In 1973, the collective West failed to come up with joint action to mitigate negative consequences. Both ideas of an apportionment scheme for oil and overbidding prevention were vividly discussed in the OECD Oil Committee but didn’t materialize in concrete measures.

Now stakes are much higher, and that requires the West to be united and coordinated. In such a way, costs related to embargo on Russian energy exports may be mitigated.

Apart from similarities and lessons, there are some distinctive features of the current situation

Availability of strategic reserves. Though a temporary measure, using strategic oil reserves may give time for diversification of supply sources.

Creation of the European strategic gas reserves, although being already a late decision, would also contribute to market stability. More ways to diversify the supply.

The U.S. is now considering different options for increasing global supply, alternative to Russian one: from lifting export restrictions for Venezuela and Iran to increasing own production. There were also numerous reports on the EU preparations to diversify LNG supplies and its preparedness to do without Russian gas.

Higher political stakes. Brutal war in Europe requires the West to take all necessary political and economic efforts to stop Russia and to some extent disregard market consequences of restrictive measures. The regional and world order is at stake, as Russia undermines all the basic rules, committing war crimes in Ukraine.

Allowing this to continue will eventually result in more dramatic change, compared to which any disruptions related to the oil and gas embargo on Russia may seem to be nothing.