by Gary Alexander

September 26, 2023

As I write this over the weekend, Sunday’s sunset marks the start of Yom Kippur, the holiest day on the Jewish calendar. It was on that day 50 years ago (falling on October 6, 1973), that Egyptian and Syrian forces launched a surprise attack against Israel, calculating that the nation would be caught off guard on this “double Sabbath,” since Yom Kippur fell on a Saturday, and most of the nation would be worshipping at synagogue or at home in contemplation. True, the nation was caught off guard, but eventually they reversed the initial Arab land gains before a cease-fire ended the war three weeks later.

In truth, the reversal came from massive U.S. and European arms countering Soviet-supplied Arab arms. Then came the OPEC oil embargo, which is the bigger story we need to recall as oil once again nears $100 per barrel. Before going down that road, let us recall that President Nixon and his freshly minted Secretary of State Henry Kissinger, the first naturalized U.S. citizen in that role, had plenty on their plate:

  • On October 10, Vice President Spiro Agnew was forced to resign, pleading “no contest” to income tax evasion. He was fined $10,000 and served three years’ probation.
  • On October 12, President Nixon nominated Gerald Ford to replace Agnew as Vice President. In his confirmation hearings, Ford relieved Watergate tensions by saying, “I’m a Ford, not a Lincoln.”
  • On October 17, in the middle of this turmoil, the Organization of Petroleum Exporting Countries (OPEC) met in Algiers and suspended all exports to the U.S. and other nations that supported Israel.
  • On October 20, in a “Saturday Night Massacre,” President Nixon fired Special Watergate Prosecutor Archibald Cox after firing Attorney General Elliott Richardson and Deputy AG William Ruckelshaus.

In the middle of this political brouhaha, oil prices soared when OPEC suspended oil exports to the U.S. The embargo caused shortages, gas lines, rationing and a four-fold rise in the cost of crude oil by early 1974. President Nixon imposed a “temporary” 55 mph speed limit that lasted over 20 years, until 1995.

Inflation Adjusted Oil Prices Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In nominal terms, oil rose from $3 to $12 per barrel – still cheap by today’s standards – but adjusted for inflation, that was something like rising from $20 to $60. The second 1970s oil shock – also man-made – pushed oil prices up to an inflation-adjusted $130 per barrel due to a combination of foreign intransigence by the Ayatollah Khomeini in Iran, and an inept response by President Carter’s new Energy Department.

The Second Oil Crisis – Courtesy of Iran and Carter’s New Energy Department

On August 4, 1977, new President Jimmy Carter signed into existence a new Federal Department of Energy (DOE), combining three major agencies and several minor agencies under an Energy Czar.

Therein lies the first problem. A republic of free people is not designed to obey one powerful Czar. Free markets usually distribute products more efficiently than top-down Czars, who tend to create … gas lines.

Soon after our Energy Czar took over, an Ayatollah took power in Iran, and he cut the supply of crude oil to America. Due to spot oil shortages, the President and his Czar thought they could allocate energy more equitably from a central planning committee than by allowing private companies to go where the demand was greatest, so during 1979, crude oil rose from $15 to $40, or from about $60 to $130 in 2019 dollars.

In populous states like California, New York, Pennsylvania, Texas, and New Jersey, consumers could only buy gas every other day, based on whether the last digit of their license plate number was even or odd. (I had a 55-mile commute, each way, each day, so I had to alternate cars and endure gas lines.)

Then, Carter and his Czar decided to regulate oil prices, which, of course, exacerbated the gas shortage. Regulators then ordered refiners to restrict the supply of gasoline to build inventories, which led to even higher prices. According to Investopedia, the Department of Energy then “decided to make a handful of large U.S. refiners sell crude to smaller refiners who could not find a ready supply of oil. Because smaller refiners had limited production capabilities, the decision further delayed gasoline supply.”

Despite this folly, the Department of Energy, to this day, continues to spend tens of billions of dollars per year, with their budget soaring under Biden to $46 billion in 2022 and $48 billion in 2023.

Department of Energy Spending Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The 3rd Oil Crisis (2008) and 4th Oil Crisis (2023-24?)

The all-time high for crude oil prices, in both real and nominal terms, came in mid-2008, when prices reached $150 per barrel (or $175 in 2019 dollars). That was a time of a general commodity price bubbles, with silver approaching $50, for a second time, gold soaring to a then-high $1,900, and some agricultural crops at or near record highs due to some June floods, but also due to the global financial crisis that year.

Commodities Research Bureau Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Crude oil then reached its lowest price in 70 years – in real terms – in April 2020, mostly due to COVID and the lockdown. The closing price on April 30, 2020, was $18.84, but the futures market price one day was -$37 per barrel before the Biden Administration took over and turned our energy independence into renewed dependence on a series of unreliable enemies (Russia, Venezuela, Iran) and OPEC manipulators.

And now we witness West Texas Intermediate crude oil approaching $100 per barrel yet again. At the start of this year, Louis Navellier predicted this would happen, but his “energy bet” went against the grain of most pundits. Now, post-Labor Day, his prediction is coming to pass due mostly to the same reasons why the 1970s energy shocks took place – by offending Mideast oil producers at a time when politicians subverted our domestic energy independence. President Biden not only shut down domestic sources of gas and energy, but he has gone out of his way to offend the Saudi Royal family and other OPEC leaders.

In response to a variety of foreign policy gaffes and insults – and perhaps to impact the 2024 elections – the leaders of Saudi Arabia and Russia announced that they would extend their production cuts through the end of 2023. Goldman Sachs responded by sending a note to their clients on September 7: “Consider a bullish scenario where OPEC+ keeps the 2023 cuts…fully in place through end-2024 and where Saudi Arabia only gradually raises production.” In that scenario, Goldman sees $107 a barrel oil by end-2024.

In addition, The Wall Street Journal confirmed that diesel prices have risen over 40% since May. Since approximately 42% of European vehicles run on diesel, higher prices at the pump there are just beginning.

In America, we have no excuse for energy shortages. It’s a political decision. And, lest you think that petrified dinosaur bones only fuel trucks, planes and cars, here is a short list of petroleum byproducts:

Asphalt Glasses Pacemakers Soaps
Clothing Golf bags Phones Surgical instruments
Computer laptops Hearing Aids Prosthetics Toothpaste
Diapers IV Tubes Shampoo Toys
Fertilizers MRI machines Shaving cream Trashbags
(…and hundreds of more commonly used products for business, professional and household use)

Energy-related inflation is generally a politically-caused crisis and can often be solved by an election.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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