October 16, 1973. A Hotel in Vienna.
Ahmed Zaki Yamani had been working toward this moment for months. The Saudi Oil Minister sat with his colleagues in Vienna as the OPEC representatives reached a decision that would reshape the global economy for the next decade. They raised the price of oil by 70%, from $3.01 to $5.12 per barrel, in a single meeting. Three days later, when it became clear that the United States was airlifting military supplies to Israel during the Yom Kippur War, the Arab members of OPEC implemented a full embargo against the United States. No more oil.
What happened next became the benchmark against which every energy disruption has been measured ever since. Oil prices quadrupled from $2.90 to $11.65 a barrel by January 1974.
The S&P 500 fell 48% over 21 months in one of the most catastrophic downturns in American history. Inflation hit 11% as gas lines stretched around city blocks. Nixon was forced to impose price controls, which ultimately just made everything worse. And then when it was finally over, the world had changed.
This matters right now because the IEA or International Energy Agency announced today the largest emergency oil reserve release in its 52-year history: A shocking total of 400 million barrels. The Strait of Hormuz, through which 20% of the world's oil and LNG has flowed for decades, is effectively closed for the first time in its history.
Analysts at Wood Mackenzie estimate roughly 15 million barrels have been removed from the global market. Understanding what happened to portfolios during the last two oil shocks is important for understand the mechanics of the current situation we find ourselves in.
Brent Crude 1Y Chart - Koyfin
What the Historical Record Actually Shows
The 1973 embargo is so often invoked and so rarely examined in portfolio terms. The summary version of "oil shock, bad for stocks, gold went up" is technically true and practically useless. The real record is more interesting to dig into.
From January 1973 to October 1974, the S&P 500 fell 48%. That's the headline number, but it really obscures the texture of the period. The bear market had already begun in January 1973, months before the embargo started in October. The Nifty Fifty had actually already begun their collapse. It seems clear that the oil shock didn't create the bear market as much as it detonated a fuse that was already lit by other factors.
And there were many culprits for the crash.
This would include overvalued equities, rising interest rates, and a currency system that had been fundamentally broken when Nixon closed the gold window in 1971. The embargo just accelerated a reckoning that was already underway.
One key point to address is that energy stocks were not a safe harbor.
From the S&P 500 peak in early 1973 to its October 1974 trough, a 50/50 basket of Exxon and Chevron fell 44%. That is almost as badly as the broader index, despite the tripling of oil prices. Nixon's price controls on oil meant that domestic producers couldn't fully pass through higher commodity prices to earnings. And not to mention the fact that recession fears overwhelmed any benefit the energy sector received from higher crude. It was only after the Nixon-era price controls were eventually lifted, and investors gained confidence that elevated oil prices were durable, that energy equity outperformance became sustained.
The same Exxon/Chevron basket, held from 1970 through 1981, returned 236% vs. the S&P's 47%, but you had to endure the 44% drawdown in the middle to get there.
Bonds were no refuge in this environment either.
Ten-year Treasury yields climbed from roughly 6% to 13% as the Fed scrambled to contain inflation. In real terms, long-term bond investors lost approximately 3% per year from 1973 through 1982. The result for most Americans is that the classic 60/40 portfolio, which many financial advisors still treat as the default, lost purchasing power for nearly a decade.
So that begs the question, what actually worked? And the answer is gold, and real assets more broadly.
From 1970 to 1980, gold went from $35 an ounce to roughly $850. That is a 2,300% nominal gain. In real terms, gold returned approximately 9% annually from 1973 through 1982. A basket of broad commodities returned more than 500% through the 1970s.
In this period real estate produced real returns of roughly 4.5% annually.
The assets that had no business being in a traditional portfolio turned out to be the ones that preserved purchasing power.
Real inflation-adjusted annual returns by asset class, 1973–1982 - WealthGen Advisors
The Second Oil Shock and What It Confirmed
The 1979 Iranian Revolution provided the confirmation data point. Iranian oil production collapsed after the Shah fled in January 1979.
Oil went from roughly $14 to $35 a barrel while global supply fell by about 4%. This was a seemingly manageable number, but ultimately exposed the oil market's extraordinary sensitivity to supply disruptions at the margin. Then, prices more than doubled. Inflation, which had briefly retreated, surged again, peaking above 13% in 1980. At the same time, gold spiked to $850 an ounce.
Paul Volcker was appointed Fed Chairman in August 1979 and responded by raising the federal funds rate to nearly 20% by June 1981. This was harsh shock treatment for the economy that killed inflation and triggered a brutal recession, but it also ended the era of stagflation.
Equity investors who held on through the entire decade including two oil shocks, two recessions, near-hyperinflation, and political turmoil, saw the S&P 500 gain just 17% nominally over the entire 1970s. In real terms, the decade erased roughly half the purchasing power of an average stock 60/40 portfolio.
The Strait of Hormuz, Fifty-Three Years Later
The differences between 1973 and 2026 matter as much as the similarities, and investors should think carefully about both.
The key structural difference working in favor of US investors is that the United States is no longer an oil-dependent importer. The shale revolution transformed America into the world's largest oil producer and exporter. A Hormuz closure that would have been catastrophic to the US economy in 1973 is now primarily a global markets problem rather than a direct domestic supply problem.
The US economy is also far less energy-intensive than it was fifty years ago and each dollar of GDP requires a fraction of the oil it once did.
But "less bad for the US" is not the same as "fine."
Oil is a globally priced commodity, and supply disruptions anywhere affect prices everywhere.
XLE vs SPY 2024- 2026 current - Koyfin
Brent crude peaked near $126 this week before pulling back to roughly $90 following the IEA announcement. Gasoline prices rose from $3.00 before the strikes to $3.41 per gallon by March 8th, with more increases in the pipeline regardless of how quickly the strait reopens, because damaged infrastructure takes time to repair. Qatar's force majeure on LNG exports has sent European natural gas prices nearly doubling. That feeds back into European industrial competitiveness, which of course feeds back into global growth.
The Fed's situation echoes 1973-74 uncomfortably.
The Fed was already fighting sticky inflation when the war started. Now it faces an oil shock that is simultaneously inflationary and recessionary, as higher energy prices act as a tax on household spending. That combination boxed in Arthur Burns in 1974 and created the conditions for the decade of stagflation that followed. Jerome Powell and Warsh after him will face the same trap.
The 1973 history also offers a warning on energy equities specifically.
The instinct to buy energy stocks when oil prices spike is understandable and not necessarily wrong, as Exxon and Chevron held from 1970 to 1981 vastly outperformed the market. But be aware that the path included a 44% drawdown in the middle that would have forced most investors to sell at the worst possible moment. Energy equities underperformed the broader market during the acute phase of the 1973-74 crash before dramatically outperforming over the following decade.
S&P 500 SPY ETF vs Exxon and Chevron YTD 2026 - Koyfin
The question for investors today is which phase they're in and whether they have the staying power to find out.
WTI Crude Price Chart - Koyfin
What the History Suggests You Should Consider
I hold positions in gold (GLD, ~5% of my portfolio) and energy (XLE, ~4%), and I've been adding modestly to the gold position this week rather than chasing energy equities.
GLD vs XLE vs SPY 1Y performance - Koyfin
The 1970s record supports this sequencing:
In the acute phase of an oil shock, gold tends to respond immediately and durably. Energy equities tend to lag, often falling initially with the broader market, before outperforming over a longer horizon as higher oil prices flow through to earnings.
For the broad portfolio, the key decision is around duration. Long-term bonds suffered catastrophically in the 1970s because inflation eroded their fixed payments while rising rates crushed their prices. That logic applies with more force if the current disruption persists and re-ignites inflation.
Shorter duration, like Treasury bills, TIPS, floating rate instruments, provides better protection in a stagflationary environment. I've trimmed long-duration exposure (TLT) and moved that allocation into short-term Treasuries (SHV) and TIPS (TIP) over the past week.
The IEA reserve release is important but should not be mistaken for a solution. The 400 million barrels sounds enormous, and it is the largest in the agency's history, but Sasha Foss at Marex put it plainly: "This buys us a few days."
At 15 million barrels per day removed from the market, that reserve release covers roughly 26 days of the current disruption. It is a bridge, not a resolution. The actual resolution depends entirely on when the Strait of Hormuz reopens, which depends on when and how this conflict ends. Nobody knows that answer.
What to watch
Trump has called this a "short-term excursion" that will conclude "soon." He has also said the goal is "ultimate victory." Those two statements are in tension with each other, and markets are correctly interpreting that tension as uncertainty. The specific catalyst to watch is any credible diplomatic channel. For example, Oman mediated the ceasefire during the 12-day conflict in June 2025.
Whether a similar offramp exists given the fact that the the opening salvo included the assassination of Iran's Supreme Leader is a genuinely open question. In my view, no ceasefire in this situation is likely to come quickly or cleanly.
Iraq War (2003) entry, drawdown, and 3-month/6-month recovery - Koyfin
The Permanent Lesson
Ahmed Zaki Yamani lifted the oil embargo in March 1974, five months after he began it. When it was over, the world looked essentially the same from the outside. While gas lines were gone and oil flowed again, something had changed permanently in how portfolios need to be constructed. Inflation-adjusted returns from stocks and bonds had both been negative for a decade. The only assets that worked were the ones that most experts and advisors at the time called "non-productive" and "speculative" such as gold, commodities, real assets.
The lesson is not that the 1970s are repeating. The circumstances in 2026 are different in important ways including the US energy position, the availability of SPR reserves, the speed of information flow, the differences in the Iranian regime and its actual capabilities.
History does not repeat itself with that kind of precision. What repeats is the behavioral pattern. Investors start investing and are trained in one environment, left reaching for the same tools when the environment changes. In the 1970s, those investors held 60/40 portfolios and watched them lose purchasing power for a decade.
The specific question for investors today is whether their portfolio was constructed for the world as it was before February 28, 2026, or for the world that is coming.
The Earnout Investor provides analysis and research but DOES NOT provide individual financial advice. Jamie Dejter may have a position in some of the stocks mentioned. All content is for informational purposes only. The Earnout Investor is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.