A Middle East conflict putting the Strait of Hormuz at risk has economists warning of an energy crisis on the scale of the 1970s oil shocks — with Europe's import-reliant economy squarely in the firing line.
Pierre-Olivier Gourinchas, chief economist at the International Monetary Fund, says the current situation could rival the oil disruptions that triggered stagflation across the West five decades ago.1 He warns the shock could push up unemployment and drive food insecurity in vulnerable countries.1
Economist Justin Wolfers is equally stark. "If we don't get a satisfactory resolution, then that concern remains," he said, warning that expensive energy could persist for years if the conflict goes unresolved.2 He stresses the cost pressures on households are real, not manufactured.
For Europe, the stakes are acute. The continent imports roughly 90% of its oil and around 80% of its natural gas. Any sustained disruption to Strait of Hormuz shipping — through which roughly 20% of global oil supply passes — would hit European industry, transport, and household bills directly.
The 1970s parallel is not rhetorical. The 1973 Arab oil embargo sent European inflation spiralling and forced governments into emergency rationing. A repeat scenario would arrive as European economies are still absorbing the energy price surge triggered by Russia's 2022 invasion of Ukraine.
Markets so far are absorbing the risk unevenly. Strong Q1 earnings from major US banks and a Nasdaq gain of 2% reflect investor confidence in financial and technology sectors.3 But equity optimism sits uneasily alongside the structural energy exposure that policymakers in Brussels and European capitals cannot trade away.
The US Federal Reserve's concurrent testimony covering monetary policy, climate-related financial risks, and innovation signals that regulators are already navigating compounding pressures.3 European central bankers face the same bind: tightening too hard risks recession; easing while energy costs surge risks embedding inflation.
The Strait of Hormuz has never been closed by conflict. But the threat alone is enough to reshape energy pricing and investment decisions. For Europe, the window to diversify supply and accelerate domestic renewables capacity has never looked more urgent — or more overdue.
