Spreading Shock Waves

As oil becomes scarcer and more expensive, the economic shock waves will hit hard throughout the economy. Petroleum is a basic raw material used in many products, including chemicals, paints, plastics and synthetic textiles. Other industries--steel, aluminum, electric power--use large quantities of oil in the course of production. When petroleum supplies become pinched and prices push up, these industries may well be forced to restrict output and raise their own prices, thus putting even more inflationary pressures on the economy. The new oil crisis, says James Wall, president of Celanese Chemical Co., confronts the American economy with "probably the most complex and vital development of the past 20 years."

Last week there were these chilling hints of what the future holds:

> The price of electricity showed signs of sharp rises. The Public Service Commission in New York announced that rates will probably increase 5.4% in New York City and as much as 26.1 % in the suburbs by January. New York's Consolidated Edison is buying high sulfur oil to compensate for dwindling supplies of low sulfur fuel.

> The cost of housing materials jumped, with a 20% increase in the price of plywood. The cause was a rash of scare buying amid fears that shortages of fuel and glue, an oil derivative, would lead to slowdowns in production. In Oregon, eleven mills, producing 5% of America's plywood, announced that they face complete or partial shutdowns this month.

> Domestic airlines, acting under a Government fuel allocation plan that began on Thursday, eliminated hundreds of flights. The cuts will amount to about 5% of regular departures, enough to keep fuel consumption at 1972 levels, but more reductions may be made if supplies fall still lower.

Scarcely any enterprise will be immune to the oil squeeze. Higher transportation and utility rates will hurt even companies and small businesses that do not rely directly on oil or petrochemicals. For high energy users like the aluminum industry, the costs of gas, electricity and oil are going up faster than any other production expenses. Prices of nitrogen and phosphate fertilizer, which use natural gas as a raw material, jumped by 30% after price controls were lifted. Textile producers also face limited production because 65% of their fibers are synthetics derived from oil. Shortages may also arise in such disparate items as lipstick, nylon stockings, phonograph records, toys, garbage bags, hair curlers and innumerable other products that use petrochemicals.

Cool Comfort. Plastics will be under particular pressure. Foster Grant, a manufacturer of sunglasses and plastic resins for industry, is already faced with shortages of petrochemicals. As Martin Fox of Revlon Inc. notes: "There is a world shortage of plastic resins. The feeling in the plastics trade is that things are getting worse." Ironically, customers may have to search for a substitute for plastic, which is itself a substitute material. One example is the auto industry, which since 1960 has increased the amount of plastics in the average car from 20 Ibs. to 138 Ibs. Auto manufacturers have lately drawn up contingency plans for going back to using metal body parts if plastic cannot be obtained.

The nation can take cool comfort in the fact that the energy crisis will have some benefits. Fuel-producing areas, notably in the West and Southwest, will be greatly enriched by the big increases in exploration and development. The airlines, many of which have been flying less than half full, will now operate with greater efficiency, and should collect higher profits as a result of fewer takeoffs and landings. The fuel shortage is also likely to accelerate the shift toward smaller cars, which get better mileage. Some industries may even acquire new importance because of the situation. As Americans prepare to bundle up against the winter cold, they are buying 25% to 30% more long winter underwear than last year.

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