Energy shocks are testing central bankers today much as they did in the 1970s, when the Yom Kippur war triggered Opec oil price hikes that led to stagflation. The current crisis, marked by Iran's potential Strait of Hormuz disruptions, has already erased more oil supply than the 1970s shocks combined, according to the IEA's Fatih Birol. Oil prices doubled in 1973 and again in 1979, but the consequences differed dramatically due to central bank policies. Arthur Burns, Fed chair in the 1970s, ignored supply-driven inflation, allowing double-digit inflation to take hold.

Today's central banks face similar choices, though with more independent institutions. The 1970s also saw distributional struggles: oil exporters gained while developed nations suffered, and UK property bubbles burst amid regulatory failures, leading to a 72.9% stock market crash. This history warns investors that energy shocks can trigger banking crises and wealth destruction, even as modern economies are less oil-intensive. Volcker's 1979 rate hikes eventually tamed inflation but caused a severe recession, a lesson for today's policymakers navigating the greatest energy security threat in history.