Oil Price Shocks Less Shocking: A Historical Perspective

Although the situation in the Persian Gulf remains unstable and no sustainable agreement has been reached on reopening the Strait of Hormuz, oil price shocks are no longer as shocking as they once were. The demands of the US and Iran still differ significantly, and ahead of the upcoming US midterm elections, the Iranians have greater leverage than President Donald Trump. Without a full agreement, there remains a high probability of renewed military clashes, which could escalate into full-scale warfare.

While the current disruption in global oil supply is the largest in history, the consequences of the oil crises in the 1970s were far more severe. Iran continues to use oil as a political weapon, an approach with a long history. Historians note that the Allied naval blockade restricting Germany's access to oil partly contributed to its defeat in World War I. Similarly, the Japanese Empire's decision to attack Pearl Harbor was linked to the US oil embargo imposed after its invasion of China. Joseph Stalin later claimed that the defeat of Nazi Germany in World War II was partly due to Soviet forces preventing the Axis from seizing oil fields in the Caucasus.