The Iran War and Its Potential Impact on Global Oil Markets: What Investors and Businesses in Oman Need to Know
In January 1974, my father lent me his old, fuel-inefficient Ford LTD to transport my clothing and books to college in Ithaca, New York. A few weeks later, when I planned to drive back home to Long Island, I discovered I couldn’t find enough gasoline for the 250-mile journey.
The 1973-74 Arab oil embargo was in full effect. Oil prices had nearly quadrupled, gas stations had long lines, and drivers were permitted to buy fuel only on alternate days. I had chosen the wrong day to travel — no gas for me. Freedom of the road was suddenly constrained.
This marked the world’s first major oil shock. By the time the second shock struck in 1978-79, triggered by the Iranian revolution, I was working as a reporter in New Jersey, frequently interviewing frustrated motorists caught in endless gas lines. Gas shortages and soaring inflation had become a routine part of American life.
Though gas line problems eventually faded with the easing of the crises, it took two recessions—managed by the formidable Federal Reserve Chair Paul Volcker—to finally tame inflation.
Less widely understood is that these oil shocks radically transformed global financial markets. Capital began flowing in unprecedented ways, reinforcing the dollar’s position as the world’s primary currency.
Currently, we may be facing what could become the third major oil shock. Fatih Birol, executive director of the International Energy Agency, has stated that the war in the Persian Gulf has caused the largest disruption to oil supplies in history. It has created gasoline shortages in Southeast Asia and pushed prices upward worldwide. However, because the United States is now a net energy exporter, its experience so far is relatively mild compared to the shocks of the 1970s.
A crucial question remains whether this conflict will be brief, or if it will fundamentally reshape global economic patterns. History offers useful insights into potential outcomes.
Oil Shocks of the 1970s
Edward L. Morse, deputy assistant secretary of state for energy policy under Carter and Reagan, described the 1973-74 oil shock as the biggest and most unexpected event of its kind, shocking the U.S. with gas lines, soaring inflation, and lasting global change.
“That’s probably the most significant event in triggering a structural change in the nature of the international energy sector that I’ve experienced,” Morse said.
He called the 1978-79 shock a “continuation” of the earlier disruption, extending shifts in power and wealth from multinational corporations to oil-producing states. Given its link to Iran’s revolution, hostage crisis, and Gulf oil shortfall, it can be seen as a precursor to the current conflict.
While the earlier oil shocks sharply worsened trade conditions for U.S. consumers, who faced much higher prices, paradoxically the crises solidified the United States as the pivotal player in global trade and finance. “The dollar ended up more important than ever,” Morse emphasized.
During the 1973-74 embargo, OPEC countries saw a rapid rise in power, supplanting decades-long dominance by multinational oil companies such as ExxonMobil, Chevron, Shell, and BP. Though these corporations remain profitable, they no longer control global oil pricing.
Post-embargo, energy prices stayed high, burdening consumers while oil producers amassed vast wealth. This era popularized the term “petrodollars” to describe the large offshore dollar reserves held by oil-exporting states.
Unbeknownst at the time, much of this wealth recycled back into the U.S. and spread globally, especially through loans by major American banks like Citibank to emerging markets. The International Monetary Fund bailouts of these countries in the 1980s directly stemmed from the financial globalization triggered by the oil embargo.
From Oil to Gold: The Monetary Shift
To grasp the full impact of the 1973-74 financial shifts, one must look back to 1971, when President Richard Nixon ended the post-World War II global monetary system.
Up until then, the U.S. dollar, the cornerstone global currency, was backed by gold at a fixed rate of $35 an ounce, and oil transactions were conducted in dollars convertible to gold. But on August 15, 1971, Nixon ended the dollar’s gold convertibility and devalued the dollar, reducing the effective price oil producers received.
Oil producers resisted this change. Research shows that, had the gold standard remained, the OPEC price hikes of the 1970s would have simply maintained stable real oil prices, rather than increasing them dramatically in dollar terms.
Armed with vast dollar reserves, oil-producing countries transformed into vital pillars of the global financial system, which to this day revolves around the dollar. The dollar has notably strengthened in value since the onset of the current Gulf conflict.
According to Cornell economist Eswar S. Prasad, the dollar’s resilience amid the current disruptions stems partly from the U.S. now being a net oil exporter, less vulnerable to shortages, and partly because the dollar has grown even more dominant in recent years despite America’s challenges.
The Power of Oil Wealth
Daniel Yergin, vice chair of S&P Global and noted oil historian, highlights that the history of energy is also a history of power—financial power included.
“People focus only on the fact that the Gulf countries export oil and gas,” Yergin said, “but they also export capital.”
Today, sovereign wealth funds from these countries are significant global financial players, investing heavily in U.S. private equity and major projects worldwide, creating a highly interconnected global economy.
Disruptions to Gulf energy flows will inevitably disrupt global financial markets. For public market investors, this conflict poses serious risks.
Despite President Donald Trump’s strong support for fossil fuels, Yergin anticipates that lessons from this war will include diversifying energy sources beyond fossil fuels and building larger strategic oil reserves to prepare for future crises.
Ethan S. Harris, former chief global economist at Bank of America, believes the war’s duration will determine its impact. “If this goes on a long time, it’s a big deal,” he said. “If it stops now, maybe we won’t need to talk about it next year.”
Previous Gulf conflicts, including two U.S.-led wars in Iraq during the 1990s and 2000s, were costly and devastating but ultimately preserved the energy status quo rather than transforming it.
Since the Iranian revolution, U.S. strategists have feared Iran could disrupt global energy flows by closing the Strait of Hormuz, a key chokepoint through which about a fifth of the world’s oil and natural gas passes. For the first time, despite heavy U.S. and Israeli attacks, Iran has shown it can close the strait, a development whose geopolitical consequences may take years to fully materialize.
For now, the hope remains for a swift resolution to the conflict.
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The historical perspective on oil shocks reveals that Oman’s energy sector stands at a critical juncture amid current geopolitical tensions, highlighting both risks of supply disruptions and opportunities to capitalize on rising global energy demands. Smart investors and entrepreneurs should prioritize strategic energy diversification and leverage Oman’s geographic advantage as a stable Gulf supplier to strengthen resilience and attract international capital inflows.
