May 17, 2018

Death of the Oil Weapon

By

Alberta’s threat last month to cut oil supplies to British Columbia and thereby cause gasoline prices to spike is not an original idea. It is called the oil weapon: holding a supply of critical oil over your customer’s head. As detailed in Daniel Yergin’s tome on the oil industry, The Prize, it was most famously used in the Arab oil embargo of 1973.

But there is something new in 2018: the electrification of transport is ready for prime time, meaning the oil weapon will soon be dead—because it just got a lot more dangerous to hold your oil customers hostage. Those who are threatened can accelerate the transition to electric mobility and slash their reliance on oil. Consider that Quebec recently announced that with a three-billion-dollar investment, it will cut gasoline use by 40% by 2030. This strategy is ideal for jurisdictions with high rates of low-carbon electricity especially if they produce more of it than they need—looking at you British Columbia.

The electrification of transport is ready for prime time.

Some might say that 2030 is far away, that a 40% reduction still isn’t being oil independent, or that anyway, such plans often fail to come to fruition. All that is true. But the history of the oil weapon suggests none of that can save this tool and that every time the oil weapon is used, or even invoked, it will speed its demise.

There are two key lessons from the oil crises of the 1970s. First, the 1973 oil embargo was possible thanks to a tight oil supply. OPEC tried to use oil supply politically before and after that period, but it was only after US oil supplies peaked (the first time) and before new supplies emerged in the 1980s that they could shock the market. Today, if customers are pushed to reduce their vulnerability to oil, it is less likely that exporters will ever again find favorable market conditions to wield the oil weapon.

Second and perhaps more importantly, the response to the oil crises of the 1970s was basically to remove as much oil as possible from as many sectors as possible. Before the crises, oil was a major source of electricity and industrial energy, but today it only dominates transportation energy because there have been no alternatives. Now that much transportation can be electrified, however, and the more the oil weapon is used, the more it will push oil importers to embrace electrification.

Not only is China cleaning its air, the business case is also solid.

We already know what electrification can do to oil demand. In just the last three years, China has electrified enough buses to displace 200,000 barrels of oil per day. Not only is China cleaning its air, the business case is also solid.

We have arrived at a new day. Any cause for the disruption of oil supplies and the spike of gasoline prices—political or not—is liable to motivate others to also accelerate electrification and oil-demand reductions. That would thankfully move the world towards cleaner air and a safer climate. For those who think oil will remain the prize and a weapon, it will be a rude awakening.

This piece was published as part of the Corporate Mapping Project (CMP). The CMP is a six-year research and public engagement initiative jointly led by the University of Victoria, the Canadian Centre for Policy Alternatives’ BC and Saskatchewan Offices, and the Alberta-based Parkland Institute. 

Topics: ,