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Back to the history books on the energy crisis

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Monday, February 21, 2022 7:00 a.m.

Letters to the Editor, CityAM (Photo by Bruno Vincent/Getty Images)

[Re: We must end our dependency on Russia’s gas and embrace renewable, Feb 18]

For an escalation to have a significant and lasting impact on markets beyond Russia and Ukraine, it would likely need to result in a significant impact on energy supply (which has not happened). after the annexation of Crimea). In fact, a major disruption in global energy supply emerges as the key feature that differentiates the few geopolitical crises that have had significant and lasting implications for global markets from the vast majority that have not.

Three specific events are worth highlighting: the OPEC oil embargo on the Yom Kippur War in 1973, the Iranian Revolution of 1979, and Iraq’s invasion of Kuwait in 1990. All three hit the world hard. global oil supply, more than doubling prices in a short period of time. In each case, soaring energy costs have contributed to recessions in the United States and elsewhere.

The reaction to the 1990 Iraq War in Kuwait may provide a reasonable first approximation of the potential fallout on global financial markets should a full-scale Russian invasion take place. While equities in general have struggled, energy producer stocks have weathered soaring energy prices. Bond yields did not fall despite the extent of the sell-off in equity markets, reflecting the threat (subsequently realized) of higher inflation as gold performed very well.

Ed Smith