Pinpoint Markets: Why the Iran war oil crunch isn’t as bad as the 1970s

Huge gains in efficiency have made the whole economy less vulnerable to energy shocks.

The International Energy Agency says President Trump’s war on Iran is causing “the largest supply disruption in the history of the global oil markets.” The de facto closure of the Strait of Hormuz, at the mouth of the Persian Gulf, is keeping 20% of the world’s petroleum from getting to market. That has caused wild swings in oil prices, which are about $30 per barrel higher than pre-war levels.

Yet stocks markets are down only slightly and there are no signs of the turmoil that rocked the US economy during the Arab oil embargo that began in 1973. That oil shock sent prices soaring not by 30%, but by 300%, and led to outright shortages that caused fuel rationing and long lines at gas stations. That huge spike in oil prices was the main cause of inflation that surged above 12% in 1974, along with a 16-month recession.

The Iranian revolution in 1979 brought another oil shock, as nearly 5 million barrels of daily Iranian production disappeared from the market. That sent inflation to nearly 15% in 1980, triggering another recession. Stocks foundered for nearly a decade, with the S&P 500 index in losing territory all the way from late 1973 until the middle of 1980.

If you’re worried about another prolonged wipeout happening in 2026, relax. The surge in oil prices is stressing markets, but the economy is far less vulnerable to a Middle East energy shock, or to any energy shock, than it was in the past. Part of the reason is the explosion in US energy production during the last 15 years, mostly due to the shale fracking revolution.