What Europe Can Learn From the 1973 Oil Shock

Russia’s war against Ukraine has sparked a wrenching energy crisis across Europe. Prior to the Feb. 24 invasion, the European Union received nearly 40 percent of its natural gas from Russia. That number has since dwindled to less than 10 percent—sending European energy prices surging, causing hardship for consumers, and planting the seeds for potential political turmoil across the continent. At the same time, it has created an opportunity for radical change in how the EU approaches energy.

This is not Europe’s first energy crisis. Nearly 50 years ago, the European Community—the EU’s predecessor—faced its first energy shock during the 1973 Arab-Israeli War, when OPEC quadrupled the price of crude oil and the Organization of Arab Petroleum Exporting Countries fully embargoed oil flowing to the United States, the Netherlands, and several other countries for taking staunchly pro-Israel stances in the conflict. Many thought these actions would destroy Western Europe’s prosperity, which over the previous 25 years had been built on access to remarkably cheap hydrocarbons; at the time, oil comprised around 60 percent of Europe’s energy mix.

Much like today, the 1973 oil shock also created the potential for reform—elevating energy security as a goal and allowing environmentalist agendas to gain momentum. Confronting such a large-scale challenge required collective action and seemed to bode well for a more unified Europe. But the European Community ultimately missed its chance to build a greener and more resilient economy. National interests quickly took over, politicizing fuel prices and preventing meaningful integration within the European Community on energy issues. By the 1980s, new investments in oil and natural gas exploration had solidified hydrocarbons as the dominant energy source powering Europe’s economies.

One lesson from Europe’s 1973 crisis is this: Without a coherent regional strategy, the dual imperatives of greening an economy and ensuring energy security may not be enough to overpower the allure of cheap fossil fuels. If today’s European leaders are to avoid this pitfall, they must harness the turbulence created by Russia’s invasion of Ukraine to break the chains of fossil fuels—together.

But by early 1974 these plans began to collapse, and member states instead charted their own policies to secure as much oil—and growth—as possible. When the Netherlands called for a declaration of solidarity from European Community members, the rest of the bloc demurred, fearing they, too, would suffer retribution from oil-producing states. Instead, Britain and France struck bilateral oil deals with Saudi Arabia, while West Germany tried to do so with Iran. Britain and Belgium restricted the export of refined oil products to their neighbors. And nearly every European nation that harbored a large international oil conglomerate called on it to favor its home country.

European energy policy after 1973 remained a profoundly national affair. France regulated oil prices, for instance, while West Germany left them largely to the market. The oil shock only sharpened these differences, despite Brussels’s calls for a common framework to reduce energy use and monitor energy prices. West Germany depended far more on the short-term oil market in Rotterdam—where large oil companies sold their surpluses to wholesalers at wildly fluctuating prices—than did its neighbors, which bought their petroleum through long-term contracts with international oil conglomerates.

In 1973, many on the German left had called for full state control over oil prices to meet the crisis. But the governing centrist coalition instead kept the nation’s liberal energy market intact, believing the high marginal price paid by German wholesalers in Rotterdam would reroute oil to the country. France complained viscerally about German policy, which priced French companies out of the Rotterdam market, but German leaders claimed they had no other choice. Self-interest trumped collective action. Much the same dynamic is unfolding with natural gas today, as Berlin resists Brussels’s call for an EU-wide ceiling on natural gas prices, fearing this might lock Europe out of the global liquefied natural gas (LNG) market.

It seemed to many leaders then—and now—that countries must be willing to pay a premium for energy that is free from foreign entanglements. For Europe between 1958 and 1973, oil from the Middle East beat every alternative fuel on cost, including domestic oil and coal. By 1973, nearly 75 percent of the European Community’s petroleum imports came from the Middle East. But as Henri Simonet, a vice chairman of the European Commission, noted at the time, Europe’s hyperdependence on one region for energy entailed immense “risk of conflicts of interests, of outbidding, and even of blackmail.” Today, similar fears have led EU members to offer unprecedented state support for energy consumers as Europe struggles to shift away from Russian gas.

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Partly as a result of high prices, total energy use across the European Community plateaued or fell during the 1970s. A more efficient energy system seemed possible, based on heat-power cogeneration, district heating, and better techniques to warm homes and offices. And in 1980, the term Energiewende—or energy transition—was coined in Germany. A similarly hopeful moment is unfolding today, as Europeans turn down their thermostats, invest in heat pumps, and pour money into renewables in the name of energy security. But as in 1973, the price of energy has opened fault lines within the EU. Commentators warn of civil unrest if the costs of electricity and heat continue to rise, and Southern European leaders—who blame Germany for living beyond its means—question how the burden of this crisis should be distributed across the bloc.

In 1973, the imperative of energy security also drove investment into new fossil fuels. West Germany, for instance, expanded its infrastructural connections with the Soviet Union to import more natural gas, and industry and homes began switching to this fuel because it cost less than oil. Coal made a comeback, too. Europe had an abundance of this black rock, and the oil shock rendered it competitive again. As the historian Henning Türk has shown, the new International Energy Agency (IEA), formed in 1974 to coordinate policy among Western nations, began pushing a transition back to coal, which had been Europe’s dominant energy source before the 1950s. At the domestic level, coal capitalists worked with state research agencies to unlock new uses for their fuel through liquefaction or gasification. Coal use across the European Community expanded through the mid-1980s, illustrating how the quest for energy security does not inherently lead to a greener economy.

Arguably the most important long-term energy outcome of 1973 was the huge volume of new, non-OPEC-sourced hydrocarbons that came in its wake. Politicians and experts had linked rising energy prices to fundamental scarcity as much as to OPEC’s cartel power, and forecasts abounded that the world would soon run out of oil. The opposite occurred. High energy prices led multinational corporations—with IEA encouragement—to pour capital into new oil fields in hard-to-reach locations that had previously been too costly to exploit. After 1973, Britain and Norway began deep-water drilling in the newly competitive North Sea; by 1985, Britain was the fifth-largest oil producer in the world, ahead of Iran and Iraq. New natural gas fields were also developed in Norway and the Soviet Union.

By the mid-1980s, world petroleum and natural gas reserves reached record highs. And as new hydrocarbons entered the market, they drove down global energy prices, which collapsed in 1985 in an economic countershock that rivaled 1973 in significance. OPEC’s power to control oil prices evaporated, and with this price collapse went a powerful incentive to conserve and use energy more efficiently. The oil shock, in other words, opened up new hydrocarbon supplies that undermined the very hopes for a greener energy system it had unleashed in the first place.

A similar dynamic is unfolding now. The sixfold rise in European natural gas prices since 2021 has made it very profitable to invest in this fuel. Despite Brussels’s efforts to minimize natural gas consumption and mounting evidence that gas is not a climate bridge, as many contend, plans for LNG terminals are proliferating across the EU; they hope to receive LNG from new gas fields opening in places such as Qatar. Europe’s ongoing energy crisis may help green its energy system in some ways—but in other ways it could entrench fossil fuel infrastructure around the world.

But 1973 illustrates how quickly such windows of opportunity can close. A more energy-efficient economy became infeasible within a decade of 1973 because of market shifts—and because politicians and international organizations did not work to continue the energy transition. The result was a vast expansion of hydrocarbons. Today, Europe’s astronomically high energy prices are threatening to revitalize coal and accelerate the construction of new natural gas infrastructure. It will take long-term political work to safeguard any clean energy advances the EU makes in the coming months and years.

That political work could be orchestrated at the EU level. But history shows how challenging it is for states to give up sovereign control over energy and devolve it to a supranational authority. The 1973 oil shock failed to produce an effective collective response from the European Community. European institutions may be stronger today, but the danger of infighting persists, as seen in the dispute over how the EU should handle sky-high natural gas prices.

National solutions that both achieve energy security and combat global warming are limited, especially given Europe’s continuing dependence on transnational energy sources. Real solidarity is needed for the EU to make headway in its green transition because achieving carbon neutrality and energy security simultaneously will impose more costs on some Europeans than others. One hopes this crisis will show that the European project is, in fact, worth quite a lot.