Another oil crisis: alert!

There was an initial oil crisis. We teach it in all economic history courses. The crisis began in October 1973 in the wake of the Yom Kippur War, when Saudi Arabia, leading the Organization of the Petroleum Exporting Countries (OPEC), refused to sell oil to countries that had sided with Israel. OPEC quickly transformed the boycott into price increases. Given the rigidity of global oil demand, OPEC was able to repeat the price increases several times, quadrupling them in just a few months—an impact that spread worldwide and fueled the obscene enrichment of the major exporters.

There were various reactions around the world. Generally, consuming countries had to reduce their consumption of oil and its derivatives. The time change this coming weekend was one of many reactions, at a time when factories—the main employers—started their workday very early, and having earlier daylight in winter seemed like a good idea. Many countries restricted driving days and Christmas lights. In general, there was a strong awareness that gasoline and diesel came from imported oil, which had become more expensive and whose consumption needed to be conserved. Within this general reaction, some states tried to compensate for the oil shortage with measures for businesses and workers (the UK, France, and Italy; also the US, despite being a producer). This triggered inflation and set in motion a vicious cycle of wage increases, easier access to credit for businesses, and more inflation, leading to what became known as "stagflation" (stagnation with inflation). From 1974 to 1979, stagflation spread to major Western countries, leading to a complete loss of competitiveness. The state intervened too heavily in economic life, fueling runaway inflation. This gave rise to the Thatcherite reaction in the UK and the Reaganite in the US.

Other countries—the Federal Republic of Germany and Japan, major oil importers—accepted the reality that the crisis was here to stay and that their oil shortages had to be addressed by reducing their reliance on imports as much as possible. They passed on the price increases to consumers and encouraged individuals and businesses to conserve petroleum products. Within a few years, their industries abandoned the most oil-intensive sectors (heavy industry, in general) and embraced new, less energy-intensive technologies—electronics and microelectronics—which would allow them to enter a new wave of progress and industrial competitiveness that brought them decades of prosperity.

Others—Spain, but not only—denied the crisis. In those final years of the Franco regime, with Franco ill and his death visibly imminent, the dictator's governments decided to absorb the costs of the more expensive oil by reducing fuel tax revenue. The main indirect tax disappeared very quickly, and gasoline consumption was subsidized instead. As a result, Spain became attractive to the most energy-intensive industries, which set up shop there to take advantage of these subsidies.

When the oil crisis returned in the wake of the Iran-Iraq War (1979-1981) and prices tripled again, the first countries had replaced their welfare state model with a highly competitive market capitalism, leading to widespread impoverishment; the second had undergone a new industrial revolution and were becoming the most advanced economies in the world; and the third were mired in a hopeless industrial crisis. Spain had chosen the latter path and paid a heavy price, enduring a ten-year crisis, mass unemployment, and a very new but completely obsolete industrial sector that needed to be restructured.

Given that this war could continue for quite some time and that the rise in oil prices will persist for a long time due to the destruction of productive capacity, what path do we want to follow? For now, it seems we've decided to repeat the late Francoist model: subsidizing the consumption of petroleum products and hoping for the best. This should by no means be a solution that becomes entrenched. Economically, it would be a huge mistake that we would pay dearly for again. They would become poorer without having tried to become more productive and competitive by consuming less imported oil. Furthermore, we would be subsidizing neighboring countries, as we have already begun to see. Meanwhile, those who have increased prices before their supply costs have risen should be inspected and fined. They are the first and foremost beneficiaries of the subsidies.