Since the Iran war began, the surge in oil prices has stirred memories of the dramatic oil shocks of 1973 and 1979.
In 1973, oil-producing Arab countries imposed an embargo against Western nations to punish them for supporting Israel during the Yom Kippur War. Oil prices skyrocketed, forcing many Western governments to implement energy-saving measures such as gasoline rationing. Germany, for instance, declared several car-free days, banning private vehicles from the streets on four consecutive Sundays. Is the world once again on the brink of a similar crisis?
Fatih Birol, head of the International Energy Agency (IEA), warned that the Iran war is “already the biggest threat to energy security in history.” He says the current crisis is worse than the 1970s oil shocks and the fallout from Russia’s full-scale invasion of Ukraine. Back then the shortfall was about five million barrels per day; today Birol says it’s 11 million barrels per day — more than during the two major oil shocks combined. He paints a similarly bleak picture for gas, saying the global gas supply shortfall has doubled compared with the situation after Russia’s 2022 invasion of Ukraine.
In the 1970s, the reduced crude supply caused oil prices to surge, driving up the cost of other goods and triggering inflation while industrial production and growth slumped. That combination of high inflation and weak growth — stagflation — hit many industrialized nations.
Oil prices have not risen as sharply as in the 1970s
The ongoing Iran conflict and the near-total closure of the Strait of Hormuz — a critical chokepoint through which about a fifth of global oil and gas shipments pass — has cut global oil supply by roughly 8%. “Back then [1970s], the global oil supply fell by only about 5%. In this respect, the shock is actually more pronounced now than in 1973 and 1974,” says Klaus-Jürgen Gern, economist at the Kiel Institute for the World Economy.
Still, oil prices rose much more sharply in the 1970s. From 1973 to 1974, oil prices quadrupled; in 1979 they tripled again. Although Arab producers lifted their embargo in early 1974 and supplies rose, elevated prices persisted for the rest of the decade, weighing on the global economy.
Today’s situation differs. Oil prices have exceeded $100 a barrel on occasion in recent years, including after Russia’s invasion of Ukraine and in 2007–2008 and 2011. “In that sense, this isn’t entirely unprecedented,” Gern says. The current high prices stem from a drop in global supply caused by the Strait of Hormuz blockade and shutdowns of Gulf fuel facilities, rather than long-lasting damage to regional energy infrastructure. He expects supply and prices to stabilize and return to pre‑war levels once the conflict ends. A Deutsche Bank Research report similarly concluded markets do not yet expect a prolonged oil shock.
Energy infrastructure damaged or shut down
The conflict has damaged more than 40 energy installations across nine Middle Eastern countries, Birol said, and bringing damaged facilities back online could take a long time — six months for some sites and much longer for others. Qatar warned that Iranian attacks on the Ras Laffan complex, the world’s largest liquefied natural gas (LNG) production facility, could cut supplies from that site by 17% for three to five years.
But some analysts caution that a full-blown energy crisis would require a prolonged Strait of Hormuz closure and further damage to installations. Christoph Rühl of Columbia University notes that while Qatar supplies about 20% of the world’s natural gas, outages at Ras Laffan would affect only about 4% of global natural gas supply.
Emergency measures to curb oil demand
The oil market is more diversified today than in the 1970s. OPEC supplied more than half of the world’s crude in 1973; its share has since fallen to just over 36%. The US, already the largest producer then, remains so and supplied as much as 90% of the additional oil on global markets over the past decade. Global supply, which was under 60 million barrels per day in 1973, reached nearly 94 million barrels per day by 2022.
To guard against disruptions, many countries have built significant oil reserves. According to the IEA, reserves reached 8.2 billion barrels at the start of this year, their highest level since February 2021. These reserves have helped mitigate current shortfalls: the IEA said member states agreed to release 400 million barrels from emergency reserves to address challenges from the Middle East conflict. It is estimated that reserve releases have reduced the global crude shortfall from 11 million barrels a day to about 8 million. The US has also temporarily suspended sanctions on Russian and Iranian oil already at sea to ease shortages. Commerzbank Research says these reserves have so far prevented a sharper rise in oil prices. IEA member countries have also built up large gas reserves over the past decade.
It comes down to how long the Iran war lasts
“The current OECD reserves — both commercial and strategic — could compensate for the loss of oil shipments through the Strait of Hormuz for about nine months,” Carsten Fritsch, commodities analyst at Commerzbank, told DW. China’s strategic and commercial reserves could cover its Middle East import needs for about seven months.
How long the military conflict endures is uncertain. President Donald Trump recently said the US and Iran were in “productive” talks to end the war, a claim Tehran denied, leaving unclear how Middle East oil and gas supplies will fare in the months ahead.
The world economy is already feeling the war’s impact. “We will see two things happen: inflation will rise in the short term, and industrial production will slow down because oil consumption will be cut back wherever possible,” said Gern.
Although Western nations like Germany have not yet imposed measures to cut energy use, some countries are already taking steps to conserve fuel. Pakistan, for instance, ordered fans of its top cricket tournament to stay home and watch matches on television, shifting the Pakistan Super League to a watch-from-home model.
This article was originally written in German.