This week marks six months since the outbreak of military conflict between the United States and Iran. This on-again, off-again, on-again conflagration has severely disrupted exports of oil, liquefied natural gas, and other vital commodities through the Strait of Hormuz. With more than two billion barrels of oil shipments already disrupted already this year, the International Energy Agency (IEA) calls this the “largest supply disruption in the history of the global oil market.”
But that is not the biggest story here.
Adjusted for inflation, benchmark petroleum prices remain well below the peaks seen during past global crises. Unlike the energy disruptions caused by the Arab oil embargo (1973–74) and the Iranian Revolution (1978–79), both of which whacked growth and triggered inflation, today’s trouble in the Middle East has hardly slowed things down. The International Monetary Fund has trimmed its outlook only modestly, now predicting 3 percent growth for the global economy this year and even higher next year—a forecast that assumes no major escalation in the war.
So how did the largest physical disruption of energy supplies in history produce the oil shock that wasn’t? The answer points to lessons that will outlast the conflict, however and whenever it is ultimately resolved.
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