The current Middle East conflict impact on oil and the markets are rhyming again with the 1970s.
Here's why Perplexity Computer says this current crisis is the closest structural replay of 1973 we've ever seen:
THE TRIGGER
1973: Nixon sends $2.2B in emergency aid to Israel during the Yom Kippur War. OAPEC retaliates with an oil embargo. Prices quadruple — $2.90/bbl to $11.65.
2026: US and Israel strike Iran. Iran shuts the Strait of Hormuz with cheap drones. Insurers refuse to cover tankers. 20% of global oil supply paralyzed overnight. Oil surges from $63 to $94 in one week — a 49% spike.
RBC Capital Markets: "The most significant energy crisis since the oil embargo of the 1970s."
THE SETUP
Both shocks hit after years of loose monetary policy. The 1970s had Vietnam War spending and two dollar devaluations. Today we're unwinding the most aggressive monetary expansion in history — zero rates through 2022, trillions in QE.
When a supply shock hits an economy flooded with money, inflation doesn't tick up. It spirals.
THE INFLATION MATH
1973-74: CPI went from 3.4% to 12.3% in two years. Burns, the Fed Chair, blamed everything except monetary policy.
2026: CPI was at a comfortable 2.4% in January. Then oil ripped. RBC estimates if crude sustains $100/bbl — which Qatar's energy minister says is imminent — inflation stays above 3% all year. We went from "mission accomplished" on inflation to staring down a second wave in two weeks.
THE MARKET
1973-74: S&P 500 fell 48% from peak to trough over 23 months.
2026 so far: S&P hit 7,002 in January, now ~6,796. Down 3%. The question is whether this is a garden-variety correction or the opening act.
WHERE IT COULD GET WORSE
The 1973 embargo lasted 5 months and was a political decision that could be reversed. The Hormuz shutdown is insurance-driven — ships can't get coverage. Even if Iran stops attacking, rebuilding insurer confidence takes time. Trump is hinting the conflict could last "weeks or even months."
And like the 1970s had two oil shocks (1973 and 1979), we're already dealing with elevated energy costs from Russia-Ukraine since 2022. This is the second shock in sequence.
THE FED'S IMPOSSIBLE CHOICE
Bernanke said it best: "Monetary policy cannot offset the recessionary and inflationary effects of increased oil prices at the same time." In the 1970s, Burns kept rates too low. Volcker had to raise them to 20% to kill the resulting inflation.
Powell now faces the same dilemma — cut into a softening economy and risk reigniting inflation, or hold firm and watch the economy crack.
BOTTOM LINE
Middle East war → oil supply shock → inflation surge → market sell-off → Fed in a bind. This is the 1973 playbook in real time.
We're early. In 1973 the S&P peaked in January and didn't bottom until December 1974. If Hormuz resolves quickly, this is a correction.
Watch oil. That's the variable that decides whether this rhymes with 1973, or forgotten in a few months.
This is exactly the copy cat of 1970s.
Middle East wars .
20% inflation.
Oil shock.
Stocks cut by 50% in one year.