One of the most useful ways to understand what’s unfolding today is to look at how similar shocks have played out before. The 1979 oil shock is as close as we get to a reference point for what’s now building in the Middle East.
As part of that research, I went back through the dates, the figures, and the sequence of events. The first is that the 1979 shock was, at its core, a production shock. Supply fell and that reduction was held for around eight months. It wasn’t temporary. It was a sustained loss of supply that the global economy had to absorb over time, and the consequences were severe.
The second point is the one that should make people pay attention now. The amount of global oil supply lost in 1979 was around 4 per cent. Later, with the Iran-Iraq war, total global disruption rose to roughly 7 per cent. On paper, that doesn’t look like much, but it was enough to create a very damaging period for the world economy. Inflation surged, growth slowed, and the effects spread far beyond the countries directly involved.
That is why the current situation is more serious than markets seem to be taking it. We are only around two months into this disruption, but the scale of supply at risk through the Strait of Hormuz is enormous. This isn’t about production being switched off. It’s about whether supply can move at all. And in this case, we’re talking about roughly 20% of the world's oil and LNG supply. That changes the equation. In many ways, the current situation is even more fragile and precarious than in 1979.
The uncomfortable reality is that the Strait of Hormuz remains at the mercy of Iran. They do not need to permanently shut it in the traditional sense. They only need the ability to occasionally strike a vessel with a relatively cheap drone or missile, and insurers step away. Once that happens, trade can grind to a halt without the need for a formal blockade. Fear and uncertainty can be just as disruptive as physical destruction.
I expect some degree of partial reopening is possible through heavy military escorts, but that should not be mistaken for a real solution. Escorting ships through a danger zone may restore some movement, but it does not restore confidence, normal insurance markets, or stable energy flows. Markets are still not pricing a sustained disruption.
History shows that it does not take the loss of all supply to do serious damage. It only takes enough disruption, held for long enough, for the system to start breaking under the strain. The scale of supply at risk today is far greater than 1979; it just hasn’t been offline for as long. Unless there is a definitive resolution soon, it is only a matter of time before share markets realise this and respond to the economic crisis unfolding.