Iran War: Oil Prices Soar to Historic Highs – A 1973 Crisis Déjà Vu?

The Strait of Hormuz is allowing only a handful of ships to transit, halting the movement of more than 20 million barrels of oil per day, roughly one-fifth of global petroleum consumption, following the commencement of war between the United States, Israel, and Iran on February 28, 2026.

The disruption has triggered the largest emergency drawdown of strategic oil reserves in the history of the International Energy Agency (IEA), founded in 1974 in response to the Arab oil embargo. The IEA’s 32 member nations have agreed to release 400 million barrels of oil from their strategic reserves, a measure more than double the volume released after the outbreak of the Russia-Ukraine war in 2022.

Brent crude, the international benchmark, has soared from $66 per barrel to over $100 since the start of the conflict. At US filling stations, the national average petrol price has climbed to over $5 a gallon in many states, reaching $8 in California. Similar price increases have been reported globally, including Cambodia (almost 68 percent increase from February 23 to March 11), Vietnam (almost 50 percent), Nigeria (35 percent), Laos (33 percent), and Canada (28 percent).

The current crisis echoes the 1973 oil embargo, when Arab nations cut production in response to US support for Israel during the Yom Kippur War. That embargo resulted in a combined shortage of 4.5 million barrels of oil per day, approximately 7 percent of the global supply at the time. In 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) raised oil prices by 70 percent and banned shipments to the US, the Netherlands, Portugal, and South Africa.

The economic consequences of the 1973 embargo were significant. US inflation hit 12.3 percent in 1974, and unemployment climbed to 9 percent by May 1975. Similar economic hardship was felt in Western Europe and Japan, with the UK introducing a three-day workweek and European governments banning Sunday driving.

The US government, under President Donald Trump, has taken steps to mitigate the current crisis, lending more than 45 million barrels of crude from its strategic petroleum reserve to oil companies. The IEA has also issued guidance to consumers and businesses, recommending reduced travel, remote work, and the use of electricity for cooking.

However, analysts warn that these measures will be insufficient to address a sustained global oil shortage. Gavekal Research estimates that Gulf exporters could reroute at most 3.5 million barrels per day via pipelines, leaving a potential shortfall of approximately 15 million barrels per day if transit through the Strait of Hormuz remains severely restricted.

The conflict began with surprise airstrikes launched by the United States and Israel on multiple sites within Iran, resulting in the deaths of Supreme Leader Ayatollah Ali Khamenei and Ali Larijani. Mojtaba Khamenei has since been appointed as the new Supreme Leader of Iran. Iran has retaliated by targeting regional US allies and effectively closing the Strait of Hormuz.

The war has also led to the escalation of the Israel-Hezbollah conflict, with Hezbollah firing rockets into Israel in support of Iran. European countries have deployed military assets to Cyprus following a drone attack on the island. The conflict has resulted in at least 13 US soldiers killed and 232 wounded, as well as the reported destruction of at least 17 US sites within Iran.

The IEA’s emergency architecture, designed in direct response to the 1973 embargo, cannot fully compensate for a sustained closure of the Strait of Hormuz. Many developing nations, particularly in Asia, have limited oil reserves and are highly vulnerable to price shocks and supply disruptions. Vietnam, Pakistan, and Indonesia each hold fewer than 20 days of oil reserves.

As of March 23, 2026, Israel and the United States have launched a new wave of attacks against Iran, even as Tehran has renewed its strikes on Gulf neighbors and pledged to target power plants in Israel and other regional countries if its own facilities are attacked. The situation remains fluid, with no immediate diplomatic resolution in sight.