The closure of the Strait following the outbreak of US-Israel war with Iran did away with one of the major routes for global oil (and LNG) supplies and also impacted Middle Eastern production and transportation infrastructure. While the de facto closure of the strait is still ongoing, more than 2 months into the crisis an assessment, by nature preliminary, of the potential medium- and longer impact might be warranted. So, is it really “the worst energy crisis” as some pundits maintain?
Let’s look at facts and how the fundamentals have changed since, in 1973, one of the worst energy crises hit world economies, and let’s put the ongoing crisis in that historical context:
The 1973 oil crisis was the major contributing factor to the 1973-1975 recessionaffecting the Western hemisphere: stock markets contracted, economic output shrunk, inflation soared as unemployment did. For example, global GDP growth declined from 6.4% in 1973 to 0.6% in 1974, for the US the corresponding figures were 5.6% and – 0,2%, respectively. The London Stock Exchange’s FT30 lost 73% of its value during the 1973 crash.
The impact of the current crisis cannot be compared with the economic consequences of the 1973 crisis. In April the IMF projected that in case the conflict remains limited in duration and scope, global growth is projected to slow from 3.4% in 2025 to 3.1% in 2026 and 3.2% the following year (in fact, the IMF has not downward revised the global GDP projections for 2026 when compared with its autumn 2025 forecast). Global headline inflation is projected to rise modestly in 2026 before resuming its decline in 2027. The projected reduction of GDP growth does not even come near to the 1973 shock. For advanced economies, the IMF projects that growth will stay around 1.8% not much different to pre-crisis projections. While region differences do exist, also for emerging market economies the impact appears modest: for example, for India a reduction of GDP growth by 0.1 percentage points is projected. Looking to the stock market, the FTSE contracted between February 26 and March 24 by less than 10% and increased since.
In its just published Spring Forecast the European Commission draws similar conclusions. The EC projects that GDP growth, after reaching 1.5% in 2025, is now expected to slow down to 1.1% this year – meaning 0.3 percentage points lower than projected in the Autumn 2025 Forecast. This scenario does not assume a prolonged conflict but it assesses in detail the economic implications triggered by energy supply disruptions and price hikes. The relatively moderate impactmust be considered in the context of a stronger-than-expected momentum in the run-up to hostilities. The Commission also notes that the current shock hits economies when they still recover from the 2022 supply disruption triggered by war in Ukraine or adapt to global trade volatilities. Not surprisingly, the impact on inflation is more pronounced, inflation is expected to rise to 3.1%, an upward revision of a full percentage point compared to the earlier forecast.
Let’s have a closer look to the trends in the energy sector and, in particular, oil since 1973:
The closure of the Strait of Hormuz has cut seaborne flows of oil by around 15% – in relative terms comparable to the disruption caused by the 1973 oil embargo. Vulnerability of global oil markets is also amplified by sanctions implemented after Russia’s invasion of Ukraine, thereby taking one major player off regular oil markets. In 2021 the three main oil producers were the US with roughly 19mbd, followed by Saudia Arabia and Russia with around 11 mbd (roughly equivalent to half the volume shipped through the Strait).
Since the 70ies, the importance of oil as a driver of economic development has dropped. Oil demand in 1972 was around 53mbd, and world GDP stood at 20.1 trillion 2015$. The corresponding figures for 2024 were 102 mbd and 96.5 trillion 2015$. In other words, the efficiency of world economies, when comparing the oil demand to produce the same economic output, almost tripled, and consequently making them less vulnerable.
Oil’s share on primary energy demand decreased since the early 70ies by around 9 percentage points to 33.6%. Most recently, the IEA forecasts as a result of the closure a contraction in world oil demand of 0.5% in 2026 (compared to 2025). This is similar to the decline experienced following the 1973 crisis. In fact, during the 2 years preceding the 1973 shock global oil demand increased 16%, while between 2023 and 2025 demand grew by less than 2%. The strain on economies to adapt to that shortfall is therefore much more mitigated.
Not only did the overall share of oil in energy supply decrease, also the relative importance of oil in other sectors declined. Growing market shares of electric vehicles, in particular in advanced economies, are increasingly reducing the pressure on oil demand for transport. The shifts in the electricity sector that followed the 1973 shock are undoubtedly the most impressive and lasting developments. One of the policies applied in the OECD was actually to replace oil in electricity generation by other fuels, thus making energy systems as a driver of economic development more resilient. In 1973 world electricity production was based around 25% on oil, its share dropped to less than 2% in 2025, while renewables make now up around one third of total generation. While beneficial for reducing oil dependencies, these trends are creating new vulnerabilities and challenges, for example when it comes to ensure and safeguard reliable and affordable electricity supply. Unfortunately, these shifts have not yet made electricity systems more resilient as recent black-outs have shown.
On the other hand, and in a scenario in which the Strait remains closed over a longer period the consequences for certain regions and industries might become more pronounced. As an example, the closure impacted global LNG shipments and in particular Qatar, as one of the major players. LNG trade represents around half of international traded gas, and around 20% of the seaborn LNG supplies are now curtailed. Natural gas is the main source for helium production which in turn is critical for a number of high-end industries.
Finally, oil price developments show a similar picture. Before the 1973 oil prices were $3.6 per barrel and increased to $10.1 per barrel during the crisis, a staggering tripling. In December 2025, prices were around 65 $, and since the closure of the Strait prices oscillated between 90 and 100 $ per barrel – this is an increase of just 60. To remember, the all-time high of oil prices in 2008 led to levels – in real terms – of around 70% above those in March this year. Those hikes were largely a result of strong economic performance and supply/demand mismatch but to a much lesser extent by geopolitical tension.
To conclude, the impact of the closure of Strait on world economies appears much less when compared to earlier supply disruptionsof a similar magnitude, economies became more robust, prise hikes were much less, energy systems became more resilient and less dependent on oil.
Yet, there are wider aspects at work which make the current crisis challenging. They go beyond disruptions affecting one, though still important commodity. Compared to the relative stability in the early years of the century, it is the acceleration of disruptions which have accumulated in the last decade which is worrying. While some of these were unforeseen, like Covid, others were perhaps provoked or simply a result of misplaced confidence in a robust international order and trust in a continuation of stable global trading systems. The emergence of geopolitical tensions was ignored as were the advent of erratic and aggressive trade policies, new supply chain vulnerabilities particularly affecting electricity, which in turn causes new risks, and military conflicts affecting regions critical for oil supply and stability. Overconfidence in a now dwindling rule-based world order, complacency and short-slightness also played a role. Interestingly, just a few years ago the EU considered LNG supplies from Qatar as a secure option to replace supplies from Russia, omitting geopolitical complexities which are particular pronounced when it comes to hydrocarbons and that region.
The current crisis might also offer opportunities if it encourages governments to pursue policies that mitigate those risks domestically, such as further strengthening preparedness, but also to address them multilaterally, fully respecting the rights, grievances and possibilities of all global players concerned. And from that vantage point, some overamplifying of the negative consequences of the current crisis might well be justified.
Austrian Senior Expert Erich Unterwurzacher war einen Großteil seiner beruflichen Laufbahn in internationalen Organisationen tätig, u. a. bei der OECD und mehr als 20 Jahre in der EU-Kommission.
