How the Hormuz attacks stoke oil-shock fears and memories of 1970s stagflation
A timeline of past oil shocks is seen offering ‘clear lessons’ for today’s Strait of Hormuz crisis, with an eye on ripple effects and contingency tools
Oil prices have surged amid the US-Israel conflict with Iran, with attacks having disrupted shipping through the Strait of Hormuz – a critical chokepoint that roughly one-fifth of the world’s daily oil consumption moves through.
With memories of 1970s stagflation still lingering, many are asking whether this is the start of another major oil crisis. Below is a concise look at prior shocks and what history suggests today.
What happened during the 1970s oil shocks
The first oil crisis in 1973-74 erupted during the Yom Kippur war, when Arab oil producers imposed an embargo on the United States and its allies, cutting global supply by about 4 million to 5 million barrels per day – about 10 per cent of world output at the time. Oil prices roughly quadrupled, triggering fuel shortages and emergency measures such as odd-even rationing in the US.
Economic and market consequences, and the resolution
Both shocks contributed to severe stagflation – high inflation combined with stagnant growth and rising unemployment. US headline inflation topped 12 per cent in 1974 and peaked near 15 per cent in 1980, according to a note by the Shenzhen-based Target Fund.
Traditional portfolios struggled as both stocks and bonds fell simultaneously, with the S&P 500 plunging more than 40 per cent during the 1973-74 bear market. Gold, however, outperformed as an inflation hedge.