Is the 1973–1974 oil crisis really the cause of inflation and market crashes? Or is the story much deeper?

Every time oil prices rise, the same narrative comes back:
“We are redoing the 1970s scenario.”

But the truth?
This is one of the most widespread… and least accurate… economic myths.

Let’s revisit what actually happened during the 1973–1974 oil crisis.

First: Markets did not collapse because of oil (at least initially)

During the October War of 1973 (October War of 1973), which coincided with an OPEC oil embargo, it was expected that markets would crash immediately.

But what actually happened was the opposite:
•The Dow Jones Index rose
•The Australian market climbed
•Markets initially reacted positively

The major crash (-48% in the US, -60% in Australia) came later… as a result of deep economic imbalances, not solely because of oil.

Second: Inflation existed before the oil shock

Before the oil shock:
•Inflation in the US: ~7.4%
•Inflation in Australia: ~10.1%

In other words:
The fire was already burning… and oil just poured fuel on it.

The real causes of inflation were:
•Strong monetary expansion since the mid-1960s
•Uncontrolled monetary policies
•The end of the Bretton Woods system in 1971

Third: Interest rates were already high

Before the crisis:
•US: ~7%
•Australia: ~6.9%

Later rising to around 10% in 1974.

This means:
Monetary policy was already tightening… and was not triggered by oil.

Fourth: Gold did not behave as everyone thinks

Common belief: Gold rises immediately with crises.

But during the oil crisis:
•Gold initially declined
•Then doubled later over the following months

The lesson:
Market reactions are not immediate… but depend on gradual risk re-pricing.

So… what was really happening?

The oil crisis was a factor within a complex system that included:
•Accumulated inflation
•Economic slowdown
•Monetary imbalances
•Political and geopolitical shocks

In other words:
Oil did not create the crisis… it exposed it.

What about today? Are we repeating the scenario?

Similarities:
•High inflation before the energy shock
•Global economic slowdown
•Geopolitical tensions
•Currency disruptions
•Rise of protectionism

Differences (and the most dangerous):
•Unprecedented sovereign debt levels
•Global productivity weakness
•Labor market fragility
•Rising populism and political division
•Loss of fiscal discipline in many countries

And most importantly:
•Today, the US is a major oil producer, unlike in the 1970s

Strategic conclusion

If you are an investor or policymaker:

Don’t fall into the trap of oversimplification.

Rising oil prices are not the story…
They are just a symptom of a deeper illness.

And as in 1973–1974:
Markets do not crash because of one factor…
But because of the accumulation of imbalances until the point of explosion.

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