October 2023 shows similarities to the 1973 oil crisis with an Israel attack and rising oil prices. Differences include spare oil capacity, moderate OPEC goals, and potential impacts on diplomacy and U.S. gasoline prices.
History doesn’t repeat itself, but sometimes it’s similar. As we approach the 50th anniversary of the first global oil crisis in 1973, some similarities exist between October 2023 and October 1973. Both times saw a surprise attack on Israel and rising oil prices. However, there are also important differences.
We are not likely to experience another Arab oil embargo like in 1973 when the price of oil tripled. But we shouldn’t ignore the possibility of higher and more prolonged oil prices.
The situation is uncertain, and it depends on how Israel and Iran respond to the attack by Hamas. Here are some key points:
- This crisis is not the same as in 1973. Arab countries are not attacking Israel together. Most of them are not actively involved.
- The oil market is different, too. In 1973, oil demand was high, and there was not much extra oil available. Today, demand is not growing as fast, and electric cars are becoming more common. Saudi Arabia & the United Arab Emirates have extra oil they can use to control prices if they want to.
- OPEC countries are not trying to push oil prices extremely high as they did in 1973. They would be happy with a modest increase in prices, not a huge jump.
- The situation could still impact oil markets in 2023 and 2024. If Israel believes Iran is behind the attack, oil prices could increase greatly. In the past, Iran has shown it can disrupt Saudi oil production. If it feels threatened, it might do that again.
- Even if Israel doesn’t respond immediately, it could affect Iranian oil production. The U.S. has allowed Iran to export more oil recently, but it might change that and impose sanctions, causing oil prices to rise.
- Russia might benefit from this crisis. If the U.S. imposes sanctions on Iran, it could create opportunities for Russia to sell more oil and get higher prices. Venezuela might also benefit if the U.S. eases sanctions.
- Diplomatic deals involving Saudi Arabia and Israel will likely be delayed or affected. It’s hard for Saudi Arabia’s leaders to support a deal with Israel when Hamas, which attacked Israel, is involved. This also makes it less likely for Saudi Arabia and Iran to improve relations, which could affect oil prices.
- Unlike in 1973, the U.S. can use its Strategic Petroleum Reserve to control gasoline prices and help President Joe Biden’s approval ratings. Even though the reserve has less oil than before, it can still be used in a crisis.
