Get Ready For The Third "Oil Shock"

  • Written by Zero Hedge
  • Published in Economics

Authored by Nick Giambruno via InternationalMan.com,

Big Middle East wars are often catastrophic for global oil supplies.

This makes sense. The Middle East accounts for more than 40% of global oil exports. So, a big conflict in the Middle East often triggers a big spike in the price of oil.

Take the 1973 “oil shock,” for example. Oil prices suddenly spiked… roughly quadrupling in a matter of weeks.

Today, we could be on the verge of an oil crisis even worse than that. That’s because regional tensions are growing in the Middle East. Specifically, the conflict between Iran and Israel—and their allies—is quickly getting worse.

As I’ll explain in a moment, this conflict could soon explode, causing a sudden spike in the price of oil.

But first, let’s take a quick look at the first two oil shocks to see how this could all play out.

The First Two Oil Shocks

In 1973, Israel was battling Egypt and Syria in the Yom Kippur War. In response to U.S. support for Israel, the Organization of the Petroleum Exporting Countries (OPEC) placed an embargo on oil exports to the U.S. and several other countries. It also cut oil production.

This triggered the first oil shock. The price of oil nearly quadrupled. It jumped from around $3 per barrel to around $12.

The second oil shock started in 1979. It grew out of the Iranian Revolution and continued with the Iran-Iraq War, which was one of the bloodiest conflicts of the past 50 years.

Iraq and Iran were (and still are) two of the biggest oil exporters in the world. So, it’s no surprise that the war rocked global energy markets.

The price of oil more than doubled, as you can see in the next chart.

There was also another, less dramatic price spike in the early 1990s. It happened after Iraq invaded Kuwait, triggering the first Gulf War. Oil shot up over 70%, as you’ll see in the next chart.

The Major Players in the Next War

The Middle East is divided into two basic geopolitical camps. On one side, you have the U.S. and its allies, like Israel and Saudi Arabia. On the other side, Russia and its allies, like Iran and Syria.

You likely know that a bloody conflict has been raging in Syria for nearly seven years. It’s the most significant military conflict on the geopolitical chessboard today.

The U.S.-side, working through its proxies, has been trying to overthrow Syria’s leader, Bashar al-Assad. Meanwhile, Russia and Iran have massively fortified his regime. Assad is still firmly in charge.

This has shifted the regional balance of power toward Iran. The U.S., Israel, and Saudi Arabia find that unacceptable. But at this point, a war is the only thing that could reverse the trend.

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