What the Last Three Oil Shocks in History Tell Us About Where Markets Go From Here

Drivers in the eastern United States discovered something they had never seen before when they pulled into gas stations on a Tuesday in October 1973. There were no pumps. Or the lines were so long that people had to wait for blocks. Alternatively, there was a handwritten sign that said, “No gas today.” The most enduring visual representation of economic vulnerability during the decade was the image of those gas lines—cars lining up around corners in New Jersey, Ohio, and California.

Approximately 4.5 million barrels per day were taken out of the world’s supply during the 1973 Arab oil embargo. The markets broke. The rate of inflation increased. Over the course of the next year, the S&P 500 experienced one of the worst single market declines in contemporary American history, falling more than 40%. Additionally, Americans realized for the first time in the postwar era that the economy’s seamless operation depended on a tangible good moving through shipping lanes and pipelines, which were ultimately run by individuals with their own political agendas.

Over half a century later, the US-Iran war has essentially shut down one of the world’s most important energy chokepoints, and the Strait of Hormuz is blocking not 4.5 million barrels but 20 million, or about one-fifth of the world’s petroleum consumption. In just a few weeks, Brent crude increased by about 50%, from about $66 per barrel prior to the start of the conflict to over $100.

Since the battle began, the S&P 500 has already experienced four weeks in a row of losses, declining by roughly 5%. Research on the same historical playbook is being published by analysts at Citigroup, Goldman Sachs, and Bank of America. Whether this period resembles 1973, 1979, or 1990 is the question that the markets are asking and that everyone with stock money is secretly calculating. The response is crucial.

Each of the three oil shocks that came before this one had a unique personality, and the distinctions are instructive. OPEC members specifically decided to embargo the United States as geopolitical retaliation during the 1973 crisis, which was a combination of supply destruction and a coordinated political act. Heating bills, manufacturing costs, and the pump all felt the impact right away.

The rate of inflation increased. The Fed reacted slowly because it had not yet solidified into the inflation-fighting apparatus Paul Volcker would later create. The combination of the oil shock, sticky inflation, and insufficient monetary policy resulted in stagflation, which characterized the remainder of the decade. The oil shock and the realization that the previous postwar economic model had reached its limit contributed to the S&P 500’s 40% decline between 1973 and 1974. The crash seemed to be the end of something structural.

The Iranian Revolution-driven shock of 1979 had a different effect. Saudi Arabia increased its own output to partially offset Iran’s collapse in oil production. Although it was brief, the disturbance was severe. Stocks got close to entering bear market territory, but they never quite did.

The 1980–1982 recession was brought on by the Federal Reserve’s response, Paul Volcker’s aggressive interest rate hikes that forced inflation out of the economy. The lesson from 1979 is that the worst effects of an oil shock may not come from the energy cost itself, but rather from the policy reaction it causes. In 2026, the Fed is still faced with the same interpretive dilemma when it comes to oil prices and inflation data: is this a temporary price spike or the start of a long-term inflationary cycle that calls for a forceful response?

Of the three, the Gulf War shock of 1990 was the most contained. Oil prices surged as a result of Iraq’s invasion of Kuwait, which eliminated another significant portion of the supply. The S&P 500 experienced a 20% decline. However, the war was brief, the coalition responded quickly, and oil prices returned to normal rather quickly. Following its recovery, the market experienced one of the longest bull runs in American history during the 1990s. As this develops, there’s a sense that the markets are currently hoping for a 1990 scenario: a severe shock followed by a resolution in which supply is restored and inflation is kept under control before the damage becomes structural.

Analysts at Bank of America have been straightforward about what the historical record truly demonstrates: duration is the most important variable. The results of an oil spike lasting six weeks differ greatly from those of an oil spike lasting eighteen months. Persistent inflationary cycles are only consistently produced by long-term, continuous supply disruptions. With member nations reducing consumption and the IEA releasing 400 million barrels from strategic reserves, the current disruption is a serious attempt to buy time. The speed at which the Strait of Hormuz reopens and the extent of the damage to Qatar’s LNG infrastructure, which early estimates indicate could keep 17% of global production offline for years, will determine whether or not that time is sufficient.

It’s most difficult to ignore the scale comparison. The shock of 4.5 million barrels per day in 1973 was severe enough to cause one of the worst bear markets of the 20th century. Twenty million are being stopped by the Hormuz closure. In an economy with more consumer debt than in 1973, a stock market that was trading at historically high valuations prior to the shooting, and a labor market that was exhibiting signs of exhaustion prior to any of this, there was more than four times the historical disruption. That does not, however, guarantee a 1973-style result. However, it makes the 1990 soft-landing scenario—the expectation that history will converge on the best-case precedent—seem to call for more than just passive optimism.