The 1973 oil crisis, triggered by the Yom Kippur War, saw global oil prices quadruple within months as Arab members of OPEC halted sales to countries supporting Israel and cut production. Petrol stations ran dry, drivers queued for hours, and fuel rationing was imposed in parts of the US. Across Europe, governments introduced measures such as car-free Sundays in the Netherlands and West Germany, and speed limit reductions in Britain.
Today, as the United States and Israel pursue a widening conflict with Iran, energy markets are again under pressure. Disruptions in the Strait of Hormuz have pushed oil prices above $100 per barrel, echoing the supply shocks of the 1970s. The scale of the 1973 crisis was amplified by the US losing its role as the world's main backup oil supplier, as American production peaked around 1972, and by the collapse of the Bretton Woods monetary system in 1971, which had previously kept inflation in check.
The economic fallout was severe: inflation surged, growth stalled, and the decade that followed was marked by stagflation. Workers demanded higher wages to keep pace with rising prices, while firms and households stockpiled supplies, exacerbating shortages. Central banks struggled to balance inflation control with recession risks, with the US Federal Reserve's rate cuts inadvertently fuelling an 'inflationary psychology'.
Today, defences against oil shocks are stronger. Central banks have clear inflation mandates and act decisively, wages adjust faster, and oil represents a smaller share of the economy. Recent shocks, such as the Russian invasion of Ukraine, have not triggered deep recessions. Moreover, high oil prices may now accelerate investment in renewable energy, offering a potential silver lining.
