Latest oil shock might be good for the world

On March 9, oil prices crossed US$ 100 a barrel for the first time in almost four years as the war in West Asia between the US and Israel on one side and Iran on the other continued to escalate with no immediate end in sight.

Oil price shocks triggered by conflict in West Asia have historically reshaped global energy systems. But the latest tensions around the Strait of Hormuz are unlikely to produce a long-term return to high oil prices.

The first oil crisis in 1973 shaped the lives of baby-boomers. The price of oil quadrupled overnight as Arab oil exporters targeted Canada, Japan, the Netherlands, the UK and the USA. The second oil crisis, in 1979, followed the Iranian Revolution and panic buying set in as the oil price shot up. Then the 1980-88 Iran-Iraq war reduced global oil supply even further, so the price rose dramatically right through the 1980s.

The latest outbreak of war in West Asia has led to oil tankers being trapped in the Straits of Hormuz, and key producers such as Qatar, Iraq and Kuwait cutting production.

Our reading of both the data and history is that this crisis will reinforce the shift away from oil. If the current war blows out...

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