Battle over oil prices in the Strait of Hormuz
5 min
The war in Iran inevitably brings back memories of the energy crisis of 1979, when the Iranian Revolution led to soaring oil prices, long queues at petrol stations and a global inflation shock. And yet, even if new risks have emerged, the global economy in 2026 is, in several important respects, less vulnerable to an oil shock than it was then.
1979 versus today
The revolution in Iran in 1979 led to a rise in oil prices of around 165%. This was not because Iran accounted for a significant proportion of global production, but because markets feared broader disruptions in the Middle East. Speculative hoarding and production restrictions by neighbouring countries, such as Saudi Arabia, also kept prices elevated for an extended period.
Today, however, there are several reasons to believe that we are not on the eve of a new oil shock. In the first instance, Iran’s market share has fallen to around 5%. In addition, OPEC+ has substantial spare capacity of at least 5 million barrels per day to offset potential shortages.
A less vulnerable economy
There are three key structural reasons why a potential oil shock would cause less economic damage today than in the 1970s.
- The economy is less energy-intensive today
The amount of oil required to produce one unit of GDP has fallen by around 70% in the United States and by 60–75% in Europe since 1980. The economy has become more efficient and less energy-intensive; cars are more fuel-efficient; and an increasing share of electricity production comes from nuclear and renewable energy sources. In the EU, the share of natural gas has fallen by around five percentage points to roughly 17% following Russia’s invasion of Ukraine.
- Inflation is much lower
During the 1979 oil crisis, inflation was already high and expectations were 'unanchored': companies and workers anticipated further price increases, triggering a wage-price spiral. Today, inflation is much lower, and long-term expectations remain relatively stable. As a result, the likelihood that a temporary spike in energy prices turning will turn into prolonged stagflation is smaller.
- The United States is the world’s largest oil producer
Thanks to the shale revolution, the U.S. has become the world’s largest producer and net exporter of oil and gas. Higher prices lead to higher export revenues and stimulate additional production, which ultimately puts downward pressure on prices. However, Europe remains an importer of oil and gas. While the United States benefits from higher gas and energy prices, Europe pays the full price.
Everything revolves around the Strait of Hormuz
Although the risk of a prolonged oil shock is lower, the fate of the economy – and the equity markets – will remain closely linked to the oil price in the coming weeks. In this regard, the accessibility of the Strait of Hormuz, a passage barely 30 kilometres wide through which 20% of all oil and gas passes, is crucial.
The initial reaction of the market to the attack on Iran was relatively muted… until Iran declared that it would close the Strait. Oil prices surged and equity markets experienced a deeply negative trading day. In response, President Donald Trump promised to introduce an insurance system in which the U.S. government would guarantee compensation for any damage to ships. Oil prices promptly fell again, and equity markets recovered much of their losses. However, traders want to see concrete measures, which has pushed prices higher again. For now, events in the Strait of Hormuz are setting the direction for Wall Street.
Time works in Iran’s favour
What is Iran’s military strategy? On the one hand, Iran realises that it cannot match the military strength of the United States and Israel. On the other, a Reuters/Ipsos poll shows that barely a quarter of Americans support their president in this war. Time therefore works in Iran’s favour. It is retaliating in a measured way while trying to push up oil prices.
With the midterm elections in November approaching and Joe Sixpack already complaining bitterly about high prices before the war began, the Republican Party cannot afford another surge in inflation.
Volatile, but buying opportunities
This conflict is, in our view, temporary in nature. We are not on the verge of a new oil crisis. Nevertheless, financial markets will remain volatile in the coming weeks. Besides this new geopolitical shock, several other ‘grey swans’ are lurking on the horizon, such as concerns about the private credit market and the high valuations of certain AI stocks. In such circumstances, war could easily become the trigger for profit-taking.
For investors, the key is to strike the right balance between protecting capital and seizing opportunities. Historically, market declines caused by geopolitical shocks have proved to be attractive buying opportunities. This time is unlikely to be any different.