Crude oil's epic fury: 300% jump! It's happened before; tracing the history

During the October 1973 Yom Kippur War, Arab OPEC members, led by Saudi Arabia, implemented an oil embargo against the US and other nations that supported Israel that led to oil rising 300 per cent.

The geopolitical developments in West Asia have ignited oil prices with Brent crude surging nearly 8 per cent to hit the $78 a barrel (bbl) mark on Monday. In the last one week, crude oil prices have jumped around 10 per cent per cent in the backdrop of the developing US-Iran-Israel geopolitical conflict.

 

Nearly 20 per cent of global oil flows through the Strait of Hormuz and over 40 per cent of India’s crude imports transit this route, creating material exposure, analysts said.  

 

While reports indicate disruption to shipping activity in the Strait, confirmation of a complete and sustained closure remains unclear, making the probability and duration of supply interruption the key variable.

 

 

“Scenario analysis suggests limited retaliation could add $5–10/bbl; direct damage to Iranian oil infrastructure could add $10–12/bbl; Hormuz disruption could push prices above $90/bbl; and a broader regional war could drive crude beyond $100/bbl,” wrote analysts at JM Financial in a recent note.

 

Tracing the footsteps

 

A look back in history shows that the steepest spike in crude oil prices dates back to the Yom Kippur War and Arab Oil Embargo in 1973-74 that sent oil prices skyrocketing 300 per cent - from $3 a barrel (bbl) in to $12/bbl, suggests a note from Equirus Research.  

 

 

During the October 1973 Yom Kippur War, Arab OPEC members, led by Saudi Arabia, implemented an oil embargo against the US and other nations that supported Israel. This move caused oil prices to rise nearly 300 per cent, creating a global energy crisis, severe gas rationing, and major economic shifts, that lasted until March 1974. 

 

The second biggest spike (in percentage) terms in crude oil prices was in 1978-80 during the Iranian Revolution, the Equirus note suggests, when prices soared from $14/bbl to around $39/bbl. Iran–Iraq War (1980–1981), Gulf War (1990–1991) and the Iraq War (2002–2003) saw crude oil price surge up to 40 per cent. (See graphic)  Economic impact 

If the tensions in West Asia persist, elevated oil prices, according to analysts at Emkay Global, would directly transmit into higher input costs and financial markets and macro stability could deteriorate. 

 

For every $1/bbl increase in Brent, they estimate an impact of around Rs 0.52/litre on diesel and around Rs 0.55/litre on petrol retail prices. Meanwhile, every $10/bbl increase in crude prices, they estimate, is likely to widen the CAD/GDP by around 0.5%, exerting additional pressure on the external balance, while retail/WPI inflation may bear close to 35bps/130bps impact and growth could be hit by 15-20 basis points (bps), ceteris paribus, per their estimates. 

 

"Assuming a near $10/bbl deviation from the baseline assumption of $65/bbl, the eventual balance sheet and fiscal and inflationary impact will hinge on how the burden is shared between the govt, OMCs, and end-consumers," said Madhavi Arora, chief economist at Emkay Global Financial Services.