A Review of the Historical Events Over the Past 50 Years That Led to Global Oil Price Surges and Their Impact
The five major impacts are the 2022 Russia-Ukraine conflict, the outbreak of the Iraq War in 2003, the Gulf War in 1990, the Iranian Revolution in 1979, and the oil embargo imposed by OPEC due to the Yom Kippur War in 1973.
The impact fundamentally depends on two variables:
1) Duration of the shock;
2) The Federal Reserve's response mechanism. The economic recession triggered by oil shocks in the 1970s was often exacerbated by the Federal Reserve tightening its policies. Three of the five oil shocks led to recessions in the U.S., while the last two occurred when economic growth was more resilient.
History shows that during such events, the U.S. stock market often outperforms its international peers, and the dollar usually gains support. The table below analyzes the average performance of major asset classes one week, three months, and six months after the events occurred.
Past experience indicates that oil price shocks typically dissipate after three months. However, the market is concerned not only with the oil price fluctuations themselves: the Federal Reserve's response measures also have a significant impact. Ultimately, it will be up to the Federal Reserve and central banks around the world to decide whether to ignore the temporary surge in oil prices.