Since the US and Israel launched a war with Iran a month ago, the Strait of Hormuz has been closed to maritime traffic. This has disrupted the flow of oil, gas and other supplies from the Gulf states, which usually export about a fifth of the world’s oil.
The month-long closure of a vital waterway for global energy supplies has prompted warnings that the world is facing problems worse than those caused by the oil crisis of the 1970s. Shipping expert Lars Jensen, a former director at Maersk, told the BBC that the impact of the US-Israeli war on Iran could be “far greater” than the economic chaos of the 70s.
His comments followed a warning from the director of the International Energy Agency, Fatih Birol, who said the world is facing the “greatest threat to global energy security in history.”
He added: “It’s much bigger than the oil price shocks of the 1970s. It’s also bigger than the natural gas price shock after Russia’s invasion of Ukraine.” However, while the closure of the Strait of Hormuz is a blow to global supplies, some argue that the world today is more stable.
WHAT HAPPENED IN THE OIL CRISIS OF THE 1970S?
The crisis of the 70s was “fundamentally different” from today’s, as the first oil shock was “the result of a deliberate political decision,” said economist Dr. Carol Nakhle, chief executive of Crystol Energy. In October 1973, Arab oil producers imposed an embargo on a group of countries led by the United States because of their support for Israel during the Yom Kippur War. This policy was accompanied by a coordinated reduction in oil production.
“The result was a quadrupling of oil prices in a matter of months,” Nakhle said. This led to fuel rationing in major consuming countries and triggered a “global economic and financial crisis” with long-term consequences.
High oil prices fueled inflation, businesses cut production, and unemployment rose sharply. The US and Britain experienced recessions from 1973 to 1975, and the crisis contributed to the fall of Ted Heath’s Conservative government in 1974. A second oil shock occurred in 1979, with the Iranian Revolution.
WHAT IS HAPPENING IN THE Latest OIL CRISIS?
Since the United States and Israel launched a war with Iran a month ago, the Strait of Hormuz has been closed to shipping. That has cut off the flow of oil, gas and other supplies from the Gulf states, which normally export about a fifth of the world’s oil. U.S. President Donald Trump has used various tactics to resume oil exports, including calling on allied countries to send warships as escorts and threatening to hit Iran harder if it does not allow safe passage for ships.
Jensen said much of the oil that left the Gulf more than a month ago is still reaching refineries around the world, but that flow will soon stop. “So the oil shortages that we’ve seen are only going to get worse, even if the Strait of Hormuz magically opened tomorrow,” he said. “We’re going to face massive energy costs, not just during the crisis but for 6 to 12 months after it.”
CAN THE Latest CRISIS BE WORSE THAN THE ONE OF THE 1970S?
Nakhle said the oil market today is more diversified and its use relative to the size of the global economy has fallen significantly. She believes that, although prices are high, today’s crisis is not as severe. “The market is more diversified, less dependent on oil and better equipped with emergency mechanisms,” she said.
Heaney added that today there are advantages such as a better understanding of economies and more countries holding oil reserves. “The best plan is to end this conflict as soon as possible and restore stability.” But economist Alicia Garcia Herrero said that the crises of the 70s reduced global supply by only 5-7%, while the current crisis affects 20% of world supplies, “surpassing the shock of the 70s.”
She warned that today’s crisis could bring sharper price increases, broader inflation and the risk of a deeper recession, especially in importing Asia. “Reserves and efficiency offer some protection that was lacking in the 70s, but the scale of the supply loss makes this crisis more severe, with no quick solution in sight,” she said.
OIL PRICES CONTINUE TO RISE
Oil prices in international markets were volatile on Tuesday as investors tried to assess the latest geopolitical developments in the Middle East and their impact on global energy supplies. Brent crude for May delivery rose 0.58% to $113.43 a barrel, while the most active June contract was quoted at $107.31. On the other hand, U.S. West Texas Intermediate crude rose a minimal 0.02% to $102.90 a barrel, having earlier reached its highest level since March 9.
Markets initially reacted to signals of negotiations between the US and Iran, but analysts stress that any real change in prices will depend on the full reopening of the Strait of Hormuz.
Meanwhile, the White House Chief of Staff has stated that discussions with Tehran are continuing, but has stressed that if a deal is not reached with Iran, including the opening of the Strait of Hormuz, the US military will blow up all Iranian infrastructure, oil wells and the oil infrastructure on Kharg Island. “The United States of America is in serious discussions with a new and more reasonable regime to end our military operations in Iran. Great progress has been made, but if for some reason a deal is not reached soon, which it probably will be, and if the Strait of Hormuz is not opened immediately, we will blow up all of their power generation facilities, oil wells and Kharg Island, which we have deliberately not ‘touched’ yet.”
Meanwhile, Iran continues to block access to this strategic corridor, through which about a fifth of the world’s oil supply is transported. As a result, oil prices have experienced a record increase in March, with Brent rising by 59% and WTI by 58%, the highest level of increase since 2020. The impact has also been felt directly by consumers. In the United States, the average price of gasoline has crossed the $4 per gallon threshold for the first time in more than three years. (BBC)