IEEJ：January ©IEEJ 2023
Special Bulletin
A Japanese Perspective on the International Energy Landscape (621)January 27, 2023

What the World Should Learn from the Oil Crisis 50 Years Ago ? (3):Complicated Energy Security Issue
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
In the year 2023, which marks the 50th anniversary of the first oil crisis amid a new energy
crisis escalated by the situation in Ukraine, it is significant for the world to question what it should
learn from experiences and lessons a half century ago. Part 3 of the series under this awareness takes
up the complication of the energy security issue.
Unquestionably, the first oil crisis was caused by the oil market geopolitics that was shaking
the world. As crude oil prices shot up due to the fourth Middle East war and the Arab oil embargo,
serious concern about crude oil supply interruption shook major oil-consuming countries, rattling theworld economy and international politics. The price spikes and supply insecurity for oil as the world’s
largest internationally traded commodity triggered the global crisis. The crisis was about oil, which
was then far more dominant than other energy sources. Oil then accounted for as much as 49% of theglobal primary energy supply. Japan depended on oil for more than 70% of its energy supply. For thisreason, the oil crisis was a grave issue rattling the entire energy market.
Energy security policies or strategies that Japan and other major oil-consuming countries
implemented and enhanced in response to the crisis were basically designed for oil supply security. To
secure stable oil supply, they aimed to (1) reduce their dependence on oil imports, (2) diversify oilimports, (3) enhance their relations with oil-producing countries and (4) increase oil stockpiles.
Measures to reduce dependence on oil imports included the enhancement of energy efficiency andconservation for reducing oil consumption, the promotion of domestic oil development and thedevelopment of alternative energy sources (such as nuclear and liquefied natural gas). To diversify oil
imports, oil-consuming countries promoted non-OPEC oil development as well as overseas oil
development supported by government or government-related institutions and imported crude oil
through government-to-government negotiations. To enhance relations with oil-producing countries,
oil-consuming countries promoted economic cooperation with Middle Eastern and other major oilproducing countries, attempting to secure stable oil supply through the enhancement of peacetime
friendly relations. To increase oil stockpiles in preparation for emergencies that could arise irrespectiveof the first to third policies, oil-consuming countries adopted national and private stockpiles and othermethods to pile up oil reserves far beyond levels required for oil refiners’ usual operations.
The International Energy Agency was created as an international framework to complement
national oil supply security policies and secure cooperation mainly between developed oil-consumingcountries. The IEA is an international organization born in response to the oil crisis, taking initiatives
to keep the international oil market stable on behalf of oil-consuming countries. Under these initiatives,
the IEA has confronted, and some other time cooperated, with oil-producing countries and theOrganization of the Petroleum Exporting Countries as their representative. While IEA initiatives have1

IEEJ：January ©IEEJ 2023
become diverse, the agency’s biggest objective has been the enhancement of international oil supplysecurity.
When thinking about the present and future energy security in consideration of theabovementioned points, we find that the energy security issue has been extremely complicated overthe past half century.
First, the ongoing international energy market destabilization features price spikes andsupply insecurity for not only oil but also other various energy sources. In particular, we must pay
attention to natural gas and LNG, which are in a critical situation. Symbolizing the critical situation
were unusual European gas price spikes seen last August, when the benchmark European gas pricesoared to some $100 per million British thermal units, close to $600 per barrel of oil equivalent. Thespikes came as a strong market response to the concern that a substantial decrease in Russian pipeline
gas supply would trigger serious gas shortages towards winter in Europe, which depends heavily on
Russian gas imports. In any energy crisis, physical supply shortages have greater impacts than pricespikes and become a strong driver of energy security policy promotion, as seen throughout history.
In fact, Europe’s desperate energy security enhancement initiatives, symbolized by the“REPowerEU” Plan, represented an immediate response to the natural gas crisis. The desperate
initiatives to secure a stable gas supply for Europe have exerted negative impacts on the internationalenergy market stability. This point reminds us of the problem seen during the oil crisis. It is also pointed
out that gas price spikes impede gas consumption in low-income developing countries and lead toincreases in coal consumption and CO2 emissions. The gas/LNG crisis is not limited to Europe but has
spread to other regions in various ways. Europe is also promoting initiatives to promote energy
efficiency and renewable and nuclear energy to reduce gas use, but it is impossible to substituterenewable and nuclear energy for Russian gas immediately. For the immediate future, Europe isrequired to expand LNG supply to stabilize the gas market. Contradictorily, however, Europe is notnecessarily positive about promoting LNG investment, complicating the gas issue. As for oil, Saudi
Arabia and other oil-producing countries have surplus production capacity, with oil reserves piled upin oil-consuming countries. In contrast, no surplus production capacity exists for natural gas or LNG.
It is difficult to stockpile LNG. How to enhance response to emergencies is a major issue for gas.
Second, we must not forget that a stable electricity supply is growing even more importantfor energy security as electrification makes progress. While naturally intermittent renewable energy
supply expands its share of power generation, surplus electricity supply capacity has declined
substantially under rationalization and cost reduction pressure through electricity market deregulation.
Regarding investment required for securing supply, various challenges are emerging. Growing natural
disasters and cybersecurity threats are complicating the stable electricity supply issue. Whileelectrification accelerates amid the enhancement of decarbonization initiatives in all countries, how tosecure stable electricity supply, including how to procure fuels for power generation, has become anurgent great challenge.
Third, economic security has become even more important amid the division of the world
and growing geopolitical tensions, leading to new energy security issues. Among them is a criticalminerals issue. As the world accelerates energy transition to enhance decarbonization and energy
security, demand for critical minerals will increase dramatically. Some of them are expected to face
the tightening supply-demand balance and price spikes around 2030 or earlier. Another problem is thatsome critical minerals and their production and processing capacity are unevenly distributed in the2

IEEJ：January ©IEEJ 2023
world, concentrating in certain countries like China. Excessive dependence on certain supply sources
for key resources has been highlighted as a problem through the oil crisis and the Ukraine crisis. Whileconsidering this and other issues, the world must explore an optimum path to enhance energy security
comprehensively and promote decarbonization.
The world is now required to enhance initiatives to cope with the complicated energy
security issue while learning lessons from the current Ukraine crisis and the oil crisis 50 years ago.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3