Panic at the pump: How Israel-Hamas conflict prompts revisit to global oil crisis

As the conflict between Hamas and Israel intensifies, oil prices have reportedly surged over 4.5% to $87 per barrel, marking a significant reversal from the 8% fall observed in the previous week.

Israeli Prime Minister Benjamin Netanyahu's declaration that Israel "is at war", rang alarm bells across the global oil market, given the region's significance as a major oil-producing and exporting hub.

But the concern is not something new. The world has been here before.

The year 1973 proved pivotal as it sent shockwaves through the oil industry, leading to a trend that would persist for decades. It was the year marked by the Arab-Israeli war – also known as the Yom Kippur War or the October War.

The conflict was born out of regional tensions between Israel and neighbouring Arab nations, primarily Egypt and Syria. Seeking to reclaim territories lost during the 1967 Six-Day War, the Arab forces launched a coordinated attack on the Jewish state on October 6, 1973, during the high holy day of Yom Kippur.

In a masterstroke of retaliation to the Yom Kippur War's Western support for Israel, Arab oil-producing countries rallied under the Organization of Petroleum Exporting Countries (OPEC) banner and reduced the oil output by 5%.

They pledged to continue the reduction until Israel withdrew from the occupied Arab territories.

More significantly, OPEC, supported by the Soviets, imposed an oil embargo on the United States, seen as the key supporter of Israel, resulting in a 70% hike in oil prices.

During the international struggle against Israel and its allies, oil became a potent weapon. Production was curtailed, and embargo measures were enforced against nations perceived as unfriendly, particularly those heavily reliant on external sources for nearly two-thirds of their imports. In the span of just three months, from October to December 1973, the price of a barrel of crude oil skyrocketed, increasing fivefold.

It triggered a widespread economic crisis, profoundly affecting Western economies in two significant ways: firstly it severely exacerbated inflationary trends (the annual inflation rate in the UK soared to 20%), and secondly, it drained the wealth of oil-importing nations, resulting in a massive budget deficit.

The US experienced the first energy crisis in its history, as oil prices quadrupled, affecting every economic sector. Inflation jumped to 12.34%, triggering an economic recession. For the first time, energy conservation measures like the national 55mph speed limit, and daylight saving were introduced.

Project Independence was announced to make the US energy independent by 1980, triggering a major shift towards energy efficiency and alternative energy sources, which eventually led to the birth of the renewable energy sector.

Despite being less dependent on Middle Eastern oil than the US due to North Sea oil, the UK still incurred inflation (soared up to 20%) and economic contraction due to higher global oil prices.

The crisis exposed the UK's dependency on finite fossil fuels and ignited a significant policy shift towards energy conservation and diversification.

The impact on the entire global oil market was immediate and severe, with oil prices quadrupling within a few short months.

This period is now referred to as the 1973 Oil Crisis.

The world grappled with energy rationing, inflation, and widespread panic, signifying the enormous power OPEC wielded over the global oil supply and pricing.

The second major crisis in recent memory took place in 1979 against the backdrop of the Iranian Revolution. This uprising led to the overthrow of Iran's Shah Mohammad Reza Pahlavi and the establishment of an Islamic republic under Ayatollah Ruhollah Khomeini.

The political upheaval disrupted Iran's oil production, causing a significant reduction in global oil supplies.

The world was still recovering from the 1973 oil shock; however, the swift drop in Iranian output sparked fresh panic. Uncertainty about the future of Iran and its oil production stoked fears of a prolonged oil shortage, pushing prices to new highs.

In the US, the cost of a barrel of oil doubled, leading to a resurgence of inflation, economic stagnation, and another round of consumer panic at the pumps.

These economic factors contributed to the "Winter of Discontent," a period of severe economic crisis and civil unrest.

The effects were severe globally, triggering recessions in many industrialised countries. For developing countries, the increased energy and fertiliser costs led to food price inflation and crises, exacerbating global poverty.

The crises reshaped international relations, strengthening energy-producer nations and sparking a global focus on energy conservation, efficiency, and alternative sources.

The connection between Middle Eastern conflicts and the global oil crisis continued to evolve over the years. Each conflict, revolution, or political unrest in the region had the potential to disrupt oil supplies and impact prices worldwide.

The Gulf War in 1990, the Iraq War in 2003, the Arab Spring in 2011, and now again Palestine-Israel conflict highlight the fragile nature of the global oil market shaped by the Middle East's conflicts.