The U.S. economy is currently enjoying the longest period of expansion in history, despite a recent stock market setback due to concerns over coronavirus. The economy has been growing for more than ten and a half years, since the end of the Great Recession of 2007-2009. Driving the current expansion is the United States having become the world’s leading energy producer.
The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales.” U.S. recessionary periods trigger business failures, changes in political leadership, and effects on U.S. citizens’ daily lives.
According to NBER, there have been seven U.S. recessions during the last 50 years. The recession of 1969-1970 coincided with attempts to close budget deficits from the Vietnam war and the raising of interest rates by the Federal Reserve.
Energy in Past Recessions
In 1973, the Organization of Petroleum Exporting Countries (OPEC) quadrupled oil prices, triggering the 1973-1975 recession, which at the time was the most severe downturn since World War II. Rising gasoline prices hammered consumers, and unemployment reached 9 percent. The federal government mandated a 55 mph vehicle speed limit and established the Strategic Petroleum Reserve. This was the first of the recent recessions caused by high oil prices.
The next decade brought a short recession in 1980, followed by a deeper recession from 1981 through 1982. The Iranian Revolution of 1979 caused oil prices to rise to more than $120 per barrel, causing a world energy crisis. To counter rising inflation from the 1970s, the Federal Reserve tightened monetary policy, boosting home mortgage rates to double-digit levels. Unemployment soared to 10.8 percent.
The recession of 1990-1991 was caused by a combination of the 1987 stock market crash and the collapse of the U.S. savings-and-loan industry. Soaring oil prices from Iraq’s invasion of Kuwait in the summer of 1990 also contributed to the slowdown.
The economic slump of 2001 was one of the few recent recessions where oil prices were not involved. This recession was caused by a combination of the collapse of the speculative dot-com bubble, the stock market pull-back in 2001, and the September 11, 2001 attacks. This recession ended the decade-long period of growth in the 1990s.
Energy Extracts U.S. from Recession
The 18-month Great Recession of 2007-2009 was the longest since the Great Depression of 1929. The subprime mortgage crisis set off the recession, leading to the collapse of a housing bubble in the United States and the failure of several financial institutions. World crude oil prices spiked to $164 per barrel in June of 2008, adding to the crisis.
Of the seven recessions the United States has experienced since 1969, high world oil prices were the primary cause of three of the slumps and a contributing factor in two others. Oil price shocks played a major role in both U.S. and global economic instability over the last 50 years.
During the last three decades, however, American geologists and petroleum engineers learned to extract oil and natural gas from shale rock formations by using hydraulic fracturing and horizontal drilling. This shale revolution now appears to have removed oil shock as a factor in economic instability.
Before the shale revolution, U.S. crude oil production had fallen from 9.6 million barrels per day in 1970 to five million barrels per day in 2008. Domestic oil production, an annual $200 billion industry, was in long-term decline, with many industry experts proclaiming America had reached “peak oil” and world oil output would soon fall.
After the breakthroughs in shale recovery technology, U.S. crude production soared beginning in 2008, reaching 12 million barrels per day in 2019, more than double the 2008 output. Production of natural gas also more than doubled from 2008 to 2019.
Energy Dominance, Net Exports
In 2011, the United States surpassed Russia as the world’s largest producer of natural gas. In 2018, the United States became the world’s largest producer of crude oil, passing Saudi Arabia. Oil prices are now largely determined by U.S. production instead of OPEC or Russian output.
In 2005, 60 percent of U.S. consumption of petroleum products was met by imports. The year 2020 will be the first in more than 70 years in which the United States is a net exporter of petroleum products, thanks to the shale revolution.
Shale Buffers Price Scares
On September 14 of last year, 25 drones and missiles exploded at two oil processing facilities in Saudi Arabia. More than half of Saudi output, 5.7 million barrels of daily production capacity, was taken offline. Oil prices hardly budged.
On January 8 of this year, Iran fired more than a dozen missiles at two Iraq facilities housing U.S. military personnel. Yet, world oil prices remain low today, just above $50 per barrel. In previous decades, the missile attacks on Saudi Arabia and Iraq would probably have triggered large oil price spikes.
The shale revolution and ramping up of American oil production have brought a new level of economic stability to the United States and the global economic system. There will still be recessions, but in the United States they will be less frequent and less severe with oil dependency and price shocks no longer being significant factors.
Steve Goreham ([email protected]) is executive director of the Climate Science Coalition of America and the author of Outside the Green Box: Rethinking Sustainable Development. This article was originally published at WorldNetDaily and is republished with permission of the author.