2026 isn’t 1979: How the US could withstand another oil shock

Just when the U.S. economy appeared to have circumvented steep increases in tariffs, it now faces a new global shock amid the conflict with Iran. The price of oil fluctuated wildly this week between $120 a barrel and $90.

Some observers have compared it to the 1979-1980 oil shock, when prices quadrupled following the Iranian revolution. Iran’s oil production plummeted from 5.2 million barrels per day in late 1978 to 1.4 million barrels per day in 1980, effectively removing 6 percent of world oil production.

Gregory Brew of the Eurasia Group says the current disruption is the largest supply shock in history by a factor of two in an interview with Vox. This mainly stems from a blockade of the Strait of Hormuz through which 20 percent of world oil supplies pass. Oil facilities across the Gulf region are also under an attack that could affect supply even when the passage is reopened.

Daniel Yergin of S&P Global calls it the “nightmare scenario” for global energy. He points out that whereas Europe and the U.S. were the main markets for Gulf oil in the 1970s and 1980s, over 80 percent of the oil and 90 percent of liquefied natural gas went to Asia last year. This has added to pressures worldwide as Asian buyers have bid up prices.   

One factor that helps contain the fallout in the U.S. is that it is now the largest producer of oil. Two decades ago, it was the world’s largest importer of oil. The U.S. is also the world’s largest exporter of liquefied natural gas, whereas exports from the U.S. were negligible even 10 years ago.

The big unknown is how long........

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