How the Hormuz attacks stoke oil-shock fears and memories of 1970s stagflation

ransport ships are seen anchored in Muscat, Oman’s port capital, on March 9, amid risks of travelling through the Strait of Hormuz due to the US-Israel conflict with Iran.

Photo: Reuters 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.

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.

The second oil crisis, from 1979 to 1980, was sparked by the Islamic revolution and then the Iran-Iraq war, which together slashed Iranian output and disrupted regional flows.

Supplies contracted by a comparable order of magnitude, and prices more than doubled again.

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.

Early policy responses, such as US price controls and petrol rationing, largely failed, the note said.

It added that inflation was finally tamed only after the Federal Reserve chairman at the time, Paul Volcker, raised interest rates to nearly 20 per cent in the early 1980s, which “triggered a recession in the short term, but cured entrenched inflation”.

Some other major economies pursued structural shifts.

Highly dependent on oil imports, France expanded nuclear power to roughly 70 per cent of its electricity from a single-digit share, while Japan accelerated moves towards energy-efficient, high-value manufacturing.

Globally, the crises drove a structural diversification of energy sources and left a lasting institutional legacy, including t

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