– Oil Crisis...is the world about to be shocked

A return to gas lines and rationing?
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - Worry about gasoline prices if you want. Current oil-price run churns up memories of gasoline rationing and long waits on gas lines.

Worry about how you're going to pay heating oil bills this winter.

But, experts agree, you don't need to worry that the current spike in oil prices means a return to long gas lines and gasoline rationing, which consumers of a certain age remember all too vividly.

Back in the 1973-1974 period and in 1979, folks waited for an hour or more on gasoline lines that at times stretched for miles, and people could only buy gas on alternate days, depending upon whether their license plate ended with an odd or even number. The federal government even printed gas-rationing coupons, although they were never used.

Many consumers associate those headaches with the Arab oil embargo of 1973 or other oil shocks of the era.

But experts contend it was price controls, not a spike in oil and gas prices, that prompted rationing and gasoline shortages.

And unlike the 1970s, when price controls were widespread for many goods and many industries operated under government regulation and rate-setting, there seems to be little public-sector appetite for a return to those kinds of controls.

California Lt. Gov. Cruz Bustamante advocated in 2003, while he was running for governor, that his state give the power to regulate gasoline prices to the California Public Utilities Commission. But the idea went nowhere -- the California state assembly never even proposed legislation on the subject.

"The situation today is so different than in the '70s," said Bruce Bartlett, senior fellow at the National Center for Policy Analysis. "The laws are different, and people's understanding about economics is different. I don't see any serious move for such controls."

Price controls were in place on a wide variety of goods in 1971, two years before the Arab oil embargo sparked the first oil crisis and the first round of shortages. Economists say that price controls in the face of rising market prices is what creates shortage and forces the government to find other means of allocating supply.

"If you're going to set a price below market price, you're going to have to have some sort of rationing. I don't care if it's gasoline, prescription drugs or rent control in New York City," said John Silvia, chief economist at Wachovia Securities.

The reason that prices rose in the face of price caps is that the controls had all manner of adjustments, said Edward Porter, research manager at the American Petroleum Institute.

"These controls were terribly complicated. Prices were changing all over the place," he said. "The government was trying to alleviate the problems they were creating."

Porter said the price controls were finally lifted in 1980, just as oil prices approached $40 a barrel, still a record when adjusted for inflation. Porter said such astronomical price increases resulted from the 1979 Iranian revolution, which significantly cut production, followed by the Iran-Iraq war, which put an even bigger crimp in supply.

Porter said that beyond the lack of political will for oil-price controls and rationing, there are various institutions in place to protect against that kind of oil shock -- institutions that weren't available in 1979 or 1980.

"At that time, we were really vulnerable to that kind of event. We didn't have the Strategic Petroleum Reserve," he said of the government's crude oil stockpile. "Today, we have the SPR and the International Energy Agency's system for releasing stocks at nearly 11 million barrels a day for a short-term interruption. We couldn't deal with lthe ong-term loss of something like Saudi Arabia. But we are prepared for something comparable to the oil embargo or Iranian revolution."
 

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