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

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.What happened during the 1970s oil shocksThe 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" class="entity-link entity-event" data-entity-id="10188" data-entity-type="event">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.Economic and market consequences, and the resolutionBoth 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.