What happened in 1978 – 80
The second shock began with the Iranian Revolution. As the Shah’ s regime collapsed, Iranian oil production fell sharply. Iranian output dropped by 4.8 million barrels per day, equal to about 7 % of world production at the time, by January 1979.
But the second crisis was not just a story of missing barrels. History shows that fears of further disruption, speculative hoarding, and strong global demand also drove prices up. Oil prices rose rapidly in mid-1979 and more than doubled between April 1979 and April 1980. Tight monetary policy in the US to control inflation led to another recession lasting again 1 year and 4months. Peak unemployment: 10.8 % Nov 1982, GDP Decline-2.7 %
The S & P500 during this time however was different. In 1978, the S & P returned 6.56 %, 18.44 % in 1979 and 32.42 % in 1980. Whilst these returns look good, inflation in the US was running extremely high during this period, with inflation at 12.11 % in 1978, 13.48 % in 1979, and 11.04 % in 1980. The real return during 1978-80 was only about 18 %. Thus, real wealth partially eroded during this period. The cycle of stagflation was ultimately broken during Paul Volcker ' s appointment as Fed Chair in 1979 whose policies on monetary policy proved successful. As a result, however, the economy was pushed into deep recession, the most severe since the Great Depression.
Figure 3: 1977-1984- S & P500 Historical Chart, adjusted for inflation( https:// www. macrotrends. net / 2324 / sp-500-historical-chart-data)
Whats happened in 2026( So far)
We are now seeing oil rise to price levels not seen since 2022. On the 9th of march, Crude Oil prices jumped around 30 % from $ 91 to 119.5 at the high point as OPEC members began to cut supply. 2022 saw Oil prices touch $ 130 in the Russia-Ukraine war. The war could leave