A worse oil shock than in the 1970s?

Is this crisis worse than those of 1973, 1979, and 2022 combined?

Fatih Birol, the head of the International Energy Agency (IEA), said in an interview that the current energy crisis is worse than the crises of 1973, 1979, and 2022 combined. The world has never before experienced a supply disruption of this magnitude.

In fact, oil production has fallen more sharply due to the blockade of the Strait of Hormuz and attacks on oil production and loading facilities in the Persian Gulf region than during any other oil crisis of the past 50 years. According to the IEA, daily crude oil production has likely fallen by at least 10 million barrels since the start of the Iran War. This amounts to approximately 12% of global oil production. In contrast, during the major oil shocks of the past, production declined by “only” 7 to 8%.

Added to this is the disruption of natural gas supplies, which did not yet play a significant role in the 1970s. In recent weeks, natural gas exports have fallen twice as sharply as they did following Russia’s invasion of Ukraine in 2022.

The specter of the 1970s

Production shortfalls in the 1970s had already dealt a severe blow to the global economy, abruptly ending the long post-World War II growth phase that had seen no major setbacks. The first oil crisis triggered the most severe economic crisis in the United States since the war. After robust growth of 5.6% in 1973, the U.S. economy contracted by 0.5% the following year. Economic output also declined slightly on average in 1975. The unemployment rate rose sharply, and the “Great Inflation” of the 1970s set in. The second oil crisis after 1979 was equally painful.

In Germany, too, growth slowed sharply as a result of the first oil crisis. The unemployment rate rose significantly; the years of full employment were over. Germany weathered the second oil crisis of 1979–1980 somewhat better, though the early 1980s were also economically difficult.

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