Column by Yuri Barsukov on whether a repeat of the 1973 crisis is possible

On October 30, the World Bank predicted an increase in oil prices to $157 per barrel if a significant escalation of the conflict in the Middle East leads to the withdrawal of supplies in the amount of 6-8 million barrels per day from the market. According to the bank, the effect will be comparable to the Arab oil embargo, which was introduced in October 1973 against Western countries that supported Israel during the Yom Kippur War.

This is the first quantitative assessment of the potential impact that the escalation of the current conflict in the Gaza Strip could have on the oil market. It looks restrained – even the worst-case scenario assumes a price increase of only 75%, while as a result of the Arab embargo of 1973, the price of imported oil in the United States quadrupled by March 1974, to $11 per barrel. However, there are indeed significant factors that limit the scale of the potential shock and, apparently, do not allow direct parallels with the events of 50 years ago.

First, the Arab countries, led by Saudi Arabia, no longer hold the same share of the global oil market as they did in 1973, and therefore do not have the same market power. In 1973, OPEC countries (which includes Iran, which then did not join the embargo) accounted for 56% of global oil production, while now it is 38%. Even the participants in the OPEC+ deal, including Russia and other non-OPEC countries, collectively occupy just over 50% of the market. Therefore, the option of a direct repetition of the embargo is unlikely, since with such a market share it will be difficult to ensure its effectiveness, even if all Arab OPEC members and Iran agree on cooperation. The World Bank, in its worst-case scenario, proceeds not so much from the possibility of an embargo, but from an assessment of the potential effects of the destruction of oil infrastructure and the closure of trade routes in the event of military escalation.

Secondly, by October 1973, the oil market was already in a state of severe deficit due to rapid growth in consumption, especially in the United States, where oil demand increased by 16% in 1969-1972 – such figures are difficult to imagine in the modern world. Thus, even before the embargo was introduced, the price of oil imports into the United States from January to September 1973 increased by 17%, while Western countries did not have any spare capacity to increase production. Now such capacities exist, and even only in the United States the shale industry can achieve significant growth in production in a relatively short time, subject to large capital investments. At the same time, oil consumption in the Western world is gradually declining, and the main points of demand growth are now in Asia – and it is Asian consumers who may be the main victims of price increases if they do occur.