“On October 6 1973, the Yom Kippur War – mainly involving Egypt, Syria and Israel –triggered one of the biggest energy crises of the 20th century.”

“Eleven days later, several Arab members of the Organization of the Petroleum Exporting Countries (OPEC) announced they would stop selling oil to countries supporting Israel and would cut production.”

“The effect was immediate. Within a few months, global oil prices quadrupled.”

“After decades of price stability, the world faced a severe shortage. Petrol stations ran dry, with some displaying a red flag to signal empty pumps; drivers queued for hours.”

“In parts of the US, fuel was rationed by licence plate number.”

“By March 1974, time spent waiting in line had raised the cost of petrol by around 50%, because drivers were also “paying” through lost time — hours that could otherwise have been spent working.”

“Across Europe, governments imposed fuel-saving measures. The Netherlands and West Germany introduced car-free Sundays, while Britain cut speed limits to reduce petrol consumption.”

“Today, as the United States and Israel continue a widening war against Iran, energy markets have again reacted: disruptions in the Strait of Hormuz, a key artery for global oil, have pushed prices above US$100 per barrel, echoing the supply shocks of the 1970s.”

“The scale and persistence of the 1973 oil shock reflected not just the embargo itself, but how it interacted with the economic system at the time.”

“One important shift was that the US stopped being the world’s main “backup supplier” of oil. For decades, American production had been large enough that output could increase when global supply tightened, but production peaked around 1972.”

“The economic consequence of this shock was a decade of stagflation: high inflation amid stagnating growth.”

“Without this buffer, markets became far more sensitive to disruptions. At the same time, oil-producing countries in the Middle East gained political leverage by coordinating production through OPEC, strengthening their influence over prices.”

“Modern economies have stronger defenses against oil shocks due to central banks' inflation control mandates and faster wage adjustments.”

“The international monetary system that had kept postwar inflation under control had collapsed in 1971. This agreement, known as Bretton Woods, had tied currencies to the US dollar. The result was that oil prices, like most commodity prices, were already rising before the embargo began.”

“Expectations made the shock worse: fearing shortages, firms and households stocked up, reducing available supply and pushing prices even higher.”

“Governments tried several ways to respond. Some countries, such as the US, introduced price controls to limit how much petrol companies could charge. Others, such as the UK and France, imposed rationing rules to manage shortages.”

“Recent shocks like the Ukraine invasion increased energy prices and inflation but did not cause a deep recession, indicating reduced economic vulnerability to oil shocks.”

“During the 1970s, many central banks including the US Federal Reserve struggled to strike the right balance. The Fed kept cutting interest rates to support the economy, but this only added to inflation.”

“High oil prices today may incentivize investment in renewable energy and accelerate the transition to cleaner energy sources.”

“Higher oil prices pushed up the cost of almost everything. Transport became more expensive. Electricity bills increased. Businesses faced higher production costs and passed these costs onto consumers.”

“Inflation surged across many advanced economies. Workers tried to protect their living standards by asking for higher pay. In many countries, strong labour unions negotiated big wage increases to keep up with rising prices.”

“Central banks also faced difficult choices: raising interest rates could reduce inflation by slowing borrowing and spending. But higher rates also risked pushing the economy deeper into recession.”

“At the same time, economic growth slowed sharply. Factories produced less, unemployment rose and investments fell.”