T

he passing of October marked the 40th anniversary of the 1973 oil embargo that brought the world economy literally to its knees.

Then the Arab members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, cut oil production and shipments to the United States and other countries that supported Israel in the Yom Kippur War. Oil prices quadrupled from around US$3 to $12 a barrel by the time the embargo was lifted six months later in March 1974.

'€œThe oil crisis set off an upheaval in global politics and the world economy,'€ wrote renowned energy expert Daniel Yergin in the Wall Street Journal. After the shock, it was widely perceived that the era of cheap and plentiful oil was over and the world had to live in an age of limitations.

The sudden realization of the vulnerability of countries to the wild fluctuations in the price of oil brought profound global changes. Throughout it all, the adjustments reshaped the fortune and international position of Indonesia.

Here is a look at the differences between Indonesia in 1973 and the present day: from oil exporter to oil importer. Four decades ago Indonesia produced more than 1 million barrels of oil per day (bpd). Sixty percent of Indonesia'€™s exports were oil and oil revenue contributed about 70 percent to the state budget. The windfall from the sharp increase in the price of oil during that period spurred high economic growth into the early 1980s. But this boom also led to some unfortunate excesses: rampant corruption, political repression and fuel subsidies that distorted prices and handicapped finances.

Now the situation has been reversed. The high economic growth rate and the artificially cheap price of fuel in Indonesia for the past 40 years pushed up domestic demand for oil to 1.5 million bpd in 2012. On the other hand, Indonesia'€™s oil production has been falling from the heights of the 1970s to its present level of about 830,000 bpd.

Now Indonesia is slowly weaning itself off fossil-fuel subsidies. Since 2004 Indonesia has been a net-
importer of oil and in 2008 it pulled out of OPEC. What this means is that to meet its domestic demand, Indonesia is much more dependent on imported oil, especially from the Middle East.

Shale oil and gas revolution is a game changer. For many years, geologists have found huge quantities of shale oil and gas locked in shale-rock formations underneath the earth'€™s surface. But they were too expensive and technically difficult to extract.

But technology has finally caught up. Bryan Walsh wrote in Time magazine that two innovations made it economical to pump oil and gas out of the formations. Pioneering companies drill vertically down into the shale and horizontally through the rock while forcing millions of liters of water mixed with chemicals at high pressure to fracture the rock, and unlock the trapped oil and gas, a technique known as fracking.

From an '€œage of limitations'€ since the 1970s, the plentiful unconventional resource of shale oil and gas is transforming the world'€™s energy industry, economy, geopolitics and the environment. A Wall Street Journal report predicted that this year, the US will overtake Russia as the world'€™s largest producer of oil and gas. The same study reported that US imports of natural gas and oil fell 32 percent and 15 percent respectively over the last five years.

A PricewaterhouseCoopers (PwC) analysis found that the potential production from shale oil could reach up to 14 million bpd by 2035, which is about 12 percent of the total oil supply in the world. PwC also estimated that by 2035 prices of oil will fall by around 25 percent to 40 percent or between $83 and $100 per barrel in real terms.

The technology to produce shale oil and gas is already spreading globally, including here. As a result, many countries will become more energy independent and we may see the erosion of OPEC'€™s influence.

In the long term, this would provide greater energy security at lower cost for Indonesia and other countries: both from its own drilling as well as importing oil from multiple suppliers.

Cheap fossil fuels discourage climate agenda. The 1973 oil embargo '€œsaved the planet'€ wrote Michael L. Ross in the Foreign Affairs Journal, and it '€œgave the rest of the world a head start against climate change.'€ After the oil crisis, countries dependent on oil-imports rushed to invest in alternative energy and improvements in energy efficiency.

Since 1975 automobile and airplane fuel efficiency standards in the United States, and elsewhere doubled. Automobile can now go as far as 27 miles per gallon, and this is set to double again in the coming decade. Automobile and airplane efficiency standards in the US matter to Indonesia and the rest of the world.

Because of the sheer size of the automotive market in the US, especially in California, environmental standards imposed on US cars become the de facto world standards. Moreover, alternative energy such as solar, wind and biofuel are increasingly represented in the energy mix of many countries.

Despite those improvements, the argument of '€œhigh oil prices and the shortage of fossil-fuel'€ to push for a climate plan no longer gain traction because of the impact of shale oil and gas.

As we enter a new age of plentiful energy, it is worth to again hear the voice of Rachel Carson, the author of Silent Spring, a book published 50-years ago that became the primary source of environmental consciousness. She says: '€œThe human race is challenged more than ever before to demonstrate our mastery, not over nature but of ourselves.'€

The writer is assistant special staff to the President on international affairs. The views expressed
are personal.