Introduction: Disruptions in the Strait of Hormuz and in Energy Markets
Following the recent U.S.-Israel escalation of conflict against Iran, Tehran has started to leverage its strategic position on the Strait of Hormuz, threatening shipping and sending shockwaves through the global economy. Located at the mouth of the Persian Gulf between Oman and Iran, the Strait of Hormuz is the chokepoint through which all shipping traffic from the Persian Gulf must travel to reach the Arabian Sea and beyond. Approximately one-fifth of the world’s oil and natural gas supply transits through the Strait of Hormuz, and after Tehran’s threats, shipping has all but stopped.
With one-fifth of global oil and LNG suddenly cut off from energy markets, the costs of both oil and natural gas have rapidly risen, with prices seeing an approximately 27% increase for oil and 74% increase for natural gas between the end of February and March 9, 2026. Brent Crude settled above $100 on March 13 for the first time since 2022 and has been hovering around that price since (as of March 25). With prices rising to hit their highest level in recent years, a long-term closure of the Strait of Hormuz will have significant ramifications for energy markets and the global economy.
1970s Energy Crisis: Lessons from History for Today
While we are in the midst of what could escalate into an unprecedented energy crisis, this is not the first time that interruptions to oil supplies from Middle Eastern countries have led to large-scale disruptions to energy markets. The 1973 Oil Crisis began when the Organization of Petroleum Exporting Countries (OPEC) enacted an oil embargo in response to the U.S. support for Israel during the Yom Kippur War and decades of discontent with price-setting by the Western ‘Seven Sisters’ oil companies. Although the embargoed oil only accounted for about 7% of global oil consumption, it sent oil prices skyrocketing and significantly strained the U.S. economy.
The 1970s saw another major shock to oil prices in 1979, driven by the Iranian Revolution and the subsequent decline in Iranian oil output which occurred in conjunction with political unrest. Fears of further supply disruptions fueled global speculation, leading to surging oil demand and prices, culminating in the second oil crisis. As a consequence of disruptions to energy supply, the energy crises of the 1970s led to the creation of the International Energy Agency (IEA) in 1974 and to accompanying strategic planning about energy security. This also laid the groundwork for the global green energy transition that we find ourselves in today, driven by a newfound urgency to diversify energy sources. The prolonged disruptions of the 1970s showcased demand destruction in action, and the long-term closure of shipping through the Strait of Hormuz could put oil on the path of demand destruction once again.
The tools used by U.S. policymakers to address the oil crises of the 1970s are the same tools available today: diversification of energy supply, increased efficiency, and increased sufficiency (the deliberate reduction of energy consumption). To diversify supply, the U.S. made investments in alternative forms of energy production. Perhaps the most relevant example of this for today was the Energy Tax Act of 1978 under President Carter, which created the first Investment Tax Credit (ITC) for solar and wind energy. The Energy Tax Act also pursued increased efficiency through a ‘gas guzzler’ excise tax on vehicles that fell below a certain fuel efficiency. In pursuit of energy sufficiency, President Nixon encouraged behavioral changes such as driving slower, carpooling, and keeping residential thermostats at lower temperatures.
Strategic Implications: Diversification, Efficiency, and Sufficiency (Same tools, different time)
While the tools for increasing energy security are the same today as they were back in the 1970s, there have been two big changes to global energy markets that have revolutionized energy geopolitics: the U.S. shale gas revolution and the development of solar photovoltaic (PV) energy. The shale gas revolution in the 2010s allowed for a rapid increase in the U.S. of natural gas and oil production, with the U.S. becoming a net energy exporter by 2019, as well as the largest producer of crude globally. This shift for the U.S. away from dependence on foreign oil could in part be attributed for emboldening recent U.S. action in Iran; however, oil is a global market. That is to say, prices are set by global supply and demand, so even as a net exporter, the U.S. will still feel the price shocks at the pump back home.
The other huge shift in energy since the 1970s is the development of solar photovoltaic energy. The price of solar modules has seen a rapid drop since the 1970s, declining 99.6% since 1976. This came in large part from the significant policy support the Chinese government provided for their domestic solar PV industry in the form of Feed-in Tariffs (FiT) and the subsequent ‘top runner’ program which revolutionized China’s domestic production capabilities and drove down prices globally. This drop in cost has completely reshaped the role that solar PV can play within energy production. During the energy crises of the 1970s, solar was considered a novel technology that could help in diversifying supply. Now, China has already proven the technology’s viability at scale, achieving solar generation costs in parity with electricity from the grid back in 2019.
Conclusion: Renewables and Energy Security
Uncertainty around the timeline of the Strait of Hormuz closure points towards demand destruction of oil as a likely outcome. While the IEA and its member states agreed to release a record-breaking 400 million barrels of oil on March 11, the response was insufficient to solve this “crisis of confidence.” The crises of the 1970s have shown that a large enough shock can result in a long-term downward trend in demand for oil. In fact, there is already evidence of demand destruction beginning in Asia, the region most reliant on crude imports coming through the Strait of Hormuz. While the disruption to global oil markets will not result in the rapid phase out of oil and gas for renewables, long-term price increases will put downward pressure on demand, incentivizing substitution, efficiency gains, and behavioral change. In the developing world, where the repercussions of the Strait’s closing will be felt the hardest, the push towards renewables will likely be even more drastic. Solar PV has reached competitive prices in the market, being cheaper than fossil fuel alternatives in many cases and competitive even if the cost of batteries is included, especially with rising oil and gas prices. Moreover, if the decarbonization of energy is a goal, comparable prices for electricity generation from fossil fuels or renewables—along with pricing that does not account for the negative externalities of pollution—should make solar PV a very attractive option. As a result, long-term closure of the Strait of Hormuz could lead to more rapid adoption of renewable power generation. After all, the drawbacks of variable power generation feel far less significant when oil is unaffordable.
Edited by: Ari Fahimi