This report is part of our ongoing coverage of the Israel-Hamas war. Visit our dedicated page for more on this topic.
Fifty years ago, war in the Middle East led to an oil embargo which quadrupled oil prices and resulted in gas shortages, rationing and stagnation.
Now that war is once again engulfing the region, are we likely to see a similar impact?
“I think we're in a very different place than we were in the 1970s,” he says Pablo Calderon-Martinezassociate professor of politics and international relations at Northeastern's London campus.
During the 1973 Arab-Israeli War — or the Yom Kippur War — Arab countries cooperated and embargoed oil from the United States and other Western countries, he said.
“We're a long way from that happening,” says Calderón-Martínez. “So I don't think there will necessarily be a shortage of available oil.”
However, Calderón-Martínez also points out that while there is no rise in oil prices at the moment, an escalation of the Israel-Hamas war could cause prices to rise.
“Nothing is happening right now, but I think the fear is that if the war escalates and becomes a protracted conflict, an out-of-control conflict involving other countries in the region, then you could have a real oil supply problem — particularly if with somehow the US gets involved in the conflict, Europe gets involved in the conflict, Iran gets involved in the conflict,” says Calderón-Martínez. “I think it's unlikely, but I stopped making predictions a long time ago.”
In the 1970s, Arab members of the Organization of the Petroleum Exporting Countries (OPEC) embargoed against the United States in retaliation for the US and several allies' support of Israel. The embargo banned oil exports and reduced oil production.
As a result of the embargo and other factors, oil prices per barrel doubled and then quadrupled. Natural gas shortages occurred and led to a glut. and began a period of stagnant economic growth with high inflation and high unemployment (stagflation).
Sounds somewhat familiar in many.
In addition, a year and a half ago, another war involving a major oil supplier – Russia's invasion of Ukraine – sent oil prices to a 14-year high of $140 a barrel. Add to this a low Strategic Oil Reserve after the Biden administration sold 180 million barrels to stabilize oil markets and combat high pump prices in the wake of the invasion, and worries multiply.
I think the fear is that if the war escalates and becomes a protracted conflict, an out-of-control conflict involving other regional countries, then you could have a real oil supply issue.
Pablo Calderón-Martínez, associate professor of politics and international relations at Northeastern's London campus
However, Calderón-Martínez notes that oil prices fell earlier this week to around $80 a barrel.
And, says Calderón-Martínez, there are quite a few differences between today and the 1970s — even today and in March 2022.
First of all, the United States responded to the 1973 embargo with various measures to reduce dependence on foreign oil—everything from increasing domestic production to fuel economy standards and the SPR.
The United States is also now the leading oil producer in the world. Moreover, the US became a net oil exportermeaning it exports more oil than it imports in 2020.
“He also has a lot of resources, partners to buy oil and many of them will be in America as well,” says Calderón-Martínez.
As for the difference between now and March 2022…
“In Russia and Ukraine, it took out one of the biggest oil producers in the world, it almost took out the production line overnight, and that has a big, big impact,” says Calderón-Martínez. “I don't think we'll see anything like it.”
Additionally, while the calendar may not have changed that much in the grand scheme of things since March 2022, the economy has.
“The Russia-Ukraine war was a big shock because we came from very different economic and monetary policies coming out of the pandemic, when interest rates were low and spend, spend, spend, spend, spend,” Calderón-Martínez. says. “Then the Russia-Ukraine war comes along, and it's not, no, no, no, no — put on the handbrake and reverse course pretty quickly. It was a big, big change in the economy.”
With high interest rates and other anti-inflation measures currently in place, rising oil prices may be less painful, Calderón-Martínez says.
This is not to say that some price increase would be surprising, especially if the Israel-Hamas war expands into a regional conflict and continues for a long time.
“I think there is an expectation (in the markets) that probably the price of oil will go up and the conflict will expand,” says Calderón-Martínez, predicting that prices could rise to $100 a barrel. “But I think it's also certain that we'll handle the shock relatively well.”
Ultimately, however, there is not much the US can do about rising oil prices.
“Oil prices are oil prices,” says Calderón-Martínez. “The US can't control it, nobody can control it, it is what it is. At the end of the day, if oil prices are $150 a barrel, they will sell it at $150 regardless of who is buying. BP, British Petroleum, does not sell oil cheaper in Britain because it is called BP.
Cyrus Moulton is a reporter for Northeastern Global News. Email him at c.moulton@northeastern.edu. Follow him on X/Twitter @MoultonCyrus.
