Summary of Key Points
The Persian Gulf is experiencing instability due to tensions between the United States and Iran, with a high risk of renewed conflict. However, the market's reaction to the current tension is relatively mild, and the economic impact is limited. Compared to the severe consequences of the oil crisis in the 1970s, the impact of the recent oil shocks has diminished due to several factors: adjustments in OPEC's strategy, improved energy efficiency, ample strategic reserves, the development of alternative energy sources, enhanced policy responses, and the positive economic effects brought about by the AI revolution. Nevertheless, the "tail risk" of a full-scale conflict escalation still exists and deserves more attention than the market currently anticipates.
1. Why Is the Stock Market Calm Despite the Tension in the Persian Gulf?
Despite the tense situation in the Persian Gulf, stock markets have been rising recently, and the market reaction has not been intense. There are two main reasons for this: first, there is hope that an agreement can be reached; for example, a temporary ceasefire could potentially lead to a long-term settlement, so people are optimistic for now. Second, past conflicts (such as the 12-day war against Iran last year) had short-lasting effects, with oil prices only rising for a few weeks before falling back. Additionally, economic data shows that although the disruption in oil supply is the largest in history, its impact on overall growth and inflation has not been as severe as expected, so the market remains calm.
2. Why Isn't There Concern About the Oil Crisis of the 1970s?
The oil crisis in the 1970s caused global stagflation (slow economic growth accompanied by soaring prices) that lasted for a decade. The impact of current oil shocks is much smaller due to the following reasons:
1. OPEC Has Learned Its Lesson: In the past, OPEC used oil as a weapon to drive up prices, only to see prices plummet later (1981-82), accompanied by a decline in demand. Now, countries like Saudi Arabia are more cautious and increase production as soon as prices rise to stabilize the market.
2. Greater Energy Efficiency: Cars and factories are using less oil to produce the same amount of goods.
3. OPEC's Power Has Diminished: Member countries are acting independently (for example, the UAE does not always follow OPEC's directives), and the increase in US shale oil production has weakened OPEC's ability to control prices.
4. Strategic Reserves: Countries like China, the United States, Europe, and Japan have stockpiled strategic oil reserves, which can be released to stabilize prices if they rise too sharply (this helped maintain market stability this year).
5. Increasing Use of Alternative Energy: Natural gas, solar energy, and electric vehicles are becoming more popular, reducing the importance of oil.
6. Better Policy Responses: Governments and central banks know how to control inflation and prevent price spikes like they did in the 1970s.
3. Has Oil Ever Really Been Used as a Weapon?
Oil has long been used as a strategic weapon throughout history:
- Germany's defeat in World War I was partly due to the Allies cutting off its oil supply;
- Japan attacked Pearl Harbor because of an US oil embargo (during its invasion of China);
- The failure of Nazi Germany to capture the Soviet Caucasus oil fields was cited by Stalin as a key factor in their defeat;
- The 1956 Suez Canal crisis disrupted European oil transportation;
- The 1967 Six-Day War was triggered by Egypt's blockade of the oil route from Iran to Israel.
However, the effectiveness of using oil as a weapon has diminished due to the aforementioned factors (increased use of alternative energy and OPEC's restraint in raising prices).
4. Has the AI Revolution Become an Economic Buffer?
The biggest difference today is the positive impact of the AI investment boom. AI can improve production efficiency, allowing companies to earn more and drive stronger economic growth while reducing costs (e.g., through automated manufacturing). This helps contain inflation. It explains why the US stock market reached new highs even when oil prices exceeded $100 per barrel this year—the benefits of AI offset the negative effects of rising oil prices. Even when conflicts escalated and caused a brief market downturn, the decline was minimal.
5. Don't Let Your Guard Down: The Risk of Conflict Escalation Remains
Although the current impact is limited, a full-scale conflict in the Persian Gulf could have serious consequences, such as a prolonged disruption in oil supply and economic stagflation (similar to the 1970s). The market has not fully realized this risk, so investors need to be vigilant. If the situation gets out of control, both the stock market and the economy could suffer significant damage.
In summary, the current tension in the Persian Gulf has not yet caused major problems, but the potential risks cannot be ignored. The development of technology, especially AI, is becoming an important factor in mitigating the impact of oil shocks. However, peace is still the best "economic policy," as conflict escalation benefits no one.