The global economy has undergone significant changes since the 1970s, particularly when it comes to oil consumption and its impact on GDP. According to recent data, oil intensity in the US, China, and the EU has declined significantly over the past several decades. In this blog post, we will explore the reasons behind this decline and what it means for the global economy today versus then.

Firstly, let’s take a look at the data. The International Energy Agency (IEA) notes that more oil has been lost in the current Middle East conflict than during the two oil crises of the 1970s combined. However, assessing what such a supply shock means for the global economy today versus then is not straightforward, as oil intensity has fallen sharply over time.

To illustrate this point, let’s examine the consumption of oil relative to GDP in the US, China, and the EU since the mid-1960s. In 1974, the US consumed 803 million tonnes of oil, equivalent to 0.56 tonnes per $1,000 of GDP (the ratio shown in the chart). Converting this to barrels (about 5.9 billion barrels) and valuing it at the 1974 oil price of $11.65 per barrel implies oil spending of roughly 4.8% of GDP.

Fast forward to 2024, and oil consumption is about 813 million tonnes – barely higher than in 1974 – but GDP has increased nearly twenty-fold, to around $28.75 trillion. Repeating the same calculation (tonnes × 7.33 to get barrels, multiplied by an average 2024 oil price of about $81 per barrel) yields oil spending of roughly 1.7% of GDP. In other words, oil volumes are broadly unchanged, GDP is twenty times larger, and oil prices are about eight times higher – yet the share of oil spending in GDP has more than halved.

The EU tells a similar story: oil spending fell from about 3.7% of GDP in 1974 to roughly 1.8% in 2024. While European GDP has increased significantly over the same period, oil consumption has remained relatively stable, resulting in a decrease in oil spending as a percentage of GDP.

So what does this decline in oil intensity mean for the global economy? On the one hand, it could be seen as a positive development, as it suggests that the global economy is becoming more efficient and less reliant on fossil fuels. This could have significant implications for energy security, environmental sustainability, and geopolitical dynamics.

On the other hand, the decline in oil intensity could also be seen as a reflection of the economic slowdown in some regions, particularly in the US and Europe. As GDP growth slows, oil spending as a percentage of GDP is likely to decrease, regardless of any changes in oil consumption patterns.