Oil price shocks – lessons from history

What can previous energy shocks teach us about the current energy crisis arising out of the Iranian War? And in what are some of the nuances this time around that distinguish it from previous crises?

We asked our team of analysts and strategists to highlight key issues not just in oil and other energy markets, but also across food, metals, and financial markets.

Chris Holdsworth, chief investment strategist, points out that our energy mix has changed over the years, including after previous oil price shocks going back to the 1970s. In pre-industrial times, wood, peat and other forms of biomass were major sources of energy (alongside human and animal labour). The Industrial Revolution saw a shift from wood to fossil fuels, first to coal and later to petroleum and natural gas. In more recent years, other sources of power have become more important, including nuclear power and renewables.

“Coal and oil together still account for about 50% of total global energy,” he notes, pointing out that despite the rapid growth in renewables, hydrocarbons remain central to the global economy. “When you land up with a supply shock of the sort that we’ve seen recently, it does make you concerned because of the impact on growth and inflation.”

Oil shocks and markets

Comparing the current crisis with previous oil supply shocks – from the OPEC embargo of the 1970s to the invasion of Ukraine in 2022 – Holdsworth notes a consistent pattern in financial markets. “Typically, the S&P 500 reacts negatively in the event of a crisis like this,” he says, with equity market declines averaging around 7% over three months following historical oil shocks.

It’s early days, but investors will be keeping an eye out for signs of any persistent weakness. While equity markets initially sold off after the latest escalation, the subsequent rally has been unusually strong. “That’s pretty atypical,” Holdsworth warns. “Normally, a shock like this would be more persistent.”

The S&P 500 and previous oil shocks

When it comes to inflation and monetary policy, fuel accounts for roughly 3 to 4% of consumer price index baskets in major economies, so jumps in prices at the pump can lead to higher inflation. “Many central banks will say they’ll look through energy shocks,” Holdsworth observed, “but history suggests many of them don’t and they hike rates.”

Further to this, economist and strategist Prof Brian Kantor questions the emphasis central banks place on so-called second-round inflation effects. “What happens to prices depends on supply and demand,” he says. “If demand is weak, firms cannot easily pass on higher costs.” Kantor believes severe monetary policy reactions run the risk of suppressing growth, without addressing the underlying shock.

Bond market implications

Annelise Peers, chief investment officer at Investec Bank Switzerland, highlights the historical relationship between oil prices and bond yields. Moves in bond yields are important because they determine the cost of government funding.

“Every time the oil price has peaked in the past, bond yields have peaked as well,” she said. The key question now, she asks, is whether the oil price shock has already peaked or if there is more to come.

If the conflict de‑escalates and oil prices stabilise, inflation may rise by less than feared, allowing higher rate expectations to unwind. “However, if oil prices remain elevated – we’re talking about oil at $150 a barrel for three to four months – then growth will slow significantly and ultimately require more accommodative policy,” she explains.

Despite near-term uncertainty, Peers has a constructive view of bonds. “If the peak is already in the market, bonds are not a bad place to be,” she says, noting that investors can still earn meaningful running yields while waiting for volatility to subside.

South African market perspective

From a local perspective, fixed-income strategist Awongiwe Booi argues that recent weakness in South African bonds reflected a repricing rather than a deterioration in fundamentals. “We’ve been on an 18‑month bull run,” she says, driven by reform momentum, fiscal consolidation and improved credibility following the adoption of a 3% inflation target by the Reserve Bank last year.

The spike in yields after the escalation in Middle East tensions, she suggests, was largely inflation‑driven.

“The widening in spreads (with US bonds) that we saw was not necessarily a structural deterioration,” Booi explains, “but rather the fact that there could be an inflation impact.”

South Africa’s status as a liquid emerging‑market currency exacerbates short‑term volatility. “The rand is one of the most liquid emerging market currencies,” she says, making it a natural pressure valve during global risk events. Nevertheless, she believes much of the sell‑off has already reversed, with yields now closer to fair value.

On monetary policy, Booi acknowledges the risk that the South African Reserve Bank may struggle to “look through” higher oil prices if inflation expectations rise. Even so, she defends the institution’s credibility. “Sometimes we don’t give the SARB enough credit,” she says. “That credibility has really solidified it in terms of stabilising the currency in particular.”

It’s not just about oil

Campbell Parry, commodity strategist, warns that we should not underestimate the scale of the supply disruption caused by the War. “This is an unprecedented shock,” he says. “And it’s not just an oil shock.”

According to Parry, between 20% and 25% of global oil and gas supply has been disrupted, alongside up to 35% of global fertiliser supply and around half of the world’s sulphur market, a key input for many industries. The Gulf region is also a major producer of helium, which is used in fields such as MRI scans and chip manufacturing. Iran, he notes, is also a major producer of methanol and high‑quality iron ore.

“It’s difficult to put toothpaste back in the tube,” Parry says, warning that damage to infrastructure, shipping routes and insurance markets could have lasting effects even if the fighting subsides.

He outlines signs of strain that are already emerging: diesel shortages in Australia, bunker fuel constraints in Singapore and dwindling jet fuel supplies in parts of Europe. Commodity traders, meanwhile, face financial stress as cargoes are stranded and replacement supplies have to be sourced at a premium.

Comparing the 1970s with the 2020s

Source: Investec Investment Management, April 2026

A new electric age?

Despite concerns about the impact on the world economy, there’s a positive longer-term conclusion to be drawn. Like the oil shocks of the 1970s that led to more fuel-efficient vehicles, Parry believes this crisis will accelerate structural change. “I think the shock has jolted the electric age forward,” he says.

Clean energy, he argues, is now cheaper, faster to deploy and more secure than fossil fuels. “Your supplier is the sun,” he notes. “And the sun’s rays don’t travel through the Strait of Hormuz.”

In a prolonged conflict scenario, Parry says investors may consider exposure to disrupted metals such as aluminium, energy‑linked commodities with low inventories, and strategic minerals essential to electrification. Over the longer term, however, he sees fossil fuel demand declining faster as renewables, electric vehicles and nuclear power gain momentum.

This view is backed by the experience of earlier oil price shocks, noted Holdsworth. Looking at US fuel economy rates (as measured by the miles-per-gallon achieved by the average car), he points out that higher fuel prices have generally made cars more fuel-efficient. “In the period 1975 to 1987, fuel efficiency improved by 68%. Between 1988 and 2004 (a period of generally low oil prices), it fell 12%, but it accelerated by 41% between 2005 and 2024.”

In short, higher oil prices spur innovation and innovation is an important counterbalance to inflation, notes Kantor. New technologies, he argues, usually improve quality faster than price indices can capture (eg today’s car model will have improvements compared with last year’s), but should act to keep inflation contained over the longer term.