War and oil: Is history about to repeat itself after 50 years?

As the war between Hamas and Israel crosses onto its second week, along with the humanitarian crisis in Palestine, there is another global quandary looming – one eerily resembling events from 50 years ago – the 1973 oil crisis.

The 1973 Arab–Israeli War, also known as Yom Kippur War and Ramadan War, took place between 6 to 25 October. It left a tumultuous mark in world history with the "First Oil Shock"- when the then-Arab world, led by Saudi King Faisal imposed an oil embargo on the West.

Immediate impact of the oil embargo was nothing short of cataclysmic. Oil prices surged dramatically, quadrupling in a matter of months. The global economy, heavily dependent on cheap and abundant oil, was suddenly confronted with the harsh reality of scarcity and spiraling costs.

The latest conflict in the Middle East poses one of the most significant geopolitical risks to oil markets since Russia's invasion of Ukraine in February of 2022. Oil flows have not yet been affected, but things can take a turn for the bad in the global economic arena.

Following the on-going Israeli atrocities in Gaza since the new conflict broke out on 7 October this year, Iranian Foreign Minister Hossein Amir-Abdollahian called on Muslim countries to impose an "immediate and complete" oil embargo on Israel. He also called for Muslim countries to recall their ambassadors from Israel and expel Israeli diplomats, at a meeting of the Organisation of Islamic Cooperation (OIC).

However, the Organisation of the Petroleum Exporting Countries (OPEC), which produces a third of the world's oil and includes several Muslim countries including Iran, said that no immediate action or emergency meetings were planned by the group in light of Iran's comments.

The Arab world of 1973 and 2023 have 50 years of difference between them - players are the same, so is the setting and game, but the playstyle and teams have changed.

It was the 70s, and war was in fashion

The 1973 Oil Crisis was, at its core, a result of an intricate web of geopolitics, economics, and energy dependency. The crisis began in October when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC),) led by Saudi Arabia, decided to impose an embargo on oil exports to Western supporters of Israel, targeting Canada, Japan, the Netherlands, Britain and the United States (US).

The Yom Kippur War has its roots in longstanding political and territorial disputes between Israel and its Arab neighbors. The Arab states sought to regain territory lost to Israel in the 1967 Six-Day War. Arab states, primarily Egypt and Syria, launched an attack on Israeli positions in the Sinai Peninsula and the Golan Heights. The conflict lasted for about three weeks and resulted in significant casualties on both sides.

The conflict prompted international involvement.

1973's embergo led quadrupling of oil prices in a matter of months, sending shockwaves through the global economy. This seismic shift in energy markets was rooted in political manoeuvring, economic necessity, and a growing desire for sovereign control over oil resources.

It caused a sharp spike in oil prices, led to fuel shortages, and exposed the vulnerability of Western economies to the whims of oil-producing nations. The crisis ended through a combination of factors, negotiations, and market dynamics.

Oil-producing nations realised the might of their economic prowess, and they were not afraid to flex their political muscles. It was a stark demonstration of how energy resources, particularly oil, were not only vital for industries and transportation but also pivotal in shaping foreign policy and global dynamics.

As such, the 1973 Oil Crisis marked the beginning of a new era in international relations, one in which energy security would take a paramount position on the geopolitical chessboard.

However, the geopolitical power shift from oil consumers to oil producers became evident, and it laid the foundation for new energy policies and economic dynamics. It also crisis led to the development of new oil provinces outside the Middle East like the North Sea and deepwater assets, and encouraged alternative energy.

Sliding down an oily slope

Negotiations and diplomacy played a crucial role in ending the 1973 crisis. The US and other Western nations engaged in discussions with OAPEC countries and Israel to find a peaceful resolution to the conflict.

A ceasefire was achieved in the Yom Kippur War in November of 1973, leading to a de-escalation of tensions. Meanwhile, diplomatic efforts continued, including the shuttle diplomacy of then-US Secretary of State Henry Kissinger, to work toward a lasting peace agreement in the region.

The embargo had led to a sharp increase in oil prices and caused economic hardships in oil-dependent nations. In response, some Western countries implemented energy conservation measures, increased domestic oil production, and sought alternative energy sources. These actions reduced the demand for foreign oil, which contributed to the easing of the crisis.

OAPEC nations, particularly Saudi Arabia, began increasing their oil production to mitigate the global oil shortage. This additional supply helped stabilise the oil market.

Along with economic woes, the crisis had political repercussions. It prompted Western nations to rethink their energy policies, leading to greater energy efficiency and investment in alternative energy sources. Additionally, OAPEC countries recognised that prolonged oil supply disruptions could have negative economic consequences for their own economies.

This is not the 70s

While the 1973 crisis bore witness to the advent of "petro-politics", 2023's politics is fueled by many other things.  A myriad of factors are at play here. But that doesn't cross away the possibility of an oil embargo like that of 1973.

The US, the strongest ally of Israel, could tighten or step up enforcement of sanctions on Iran should it be implicated in Hamas' attack on Israel, which could further strain an already undersupplied oil market. Iran has denied any involvement in the Hamas' attack on Israel.

At the same time, the US effort to normalise relations between Saudi Arabia and Israel, which has the potential of the kingdom increasing oil output, could be derailed.

In 2023, Asia is the main buyer of OPEC's crude while Western countries were the main buyers of crude produced by the Arab countries in 1973.

According to Reuters, analysts and industry insiders, who had expected a stronger rally, acknowledged that the situation differed from the 1973 oil crisis.

Saudi Arabia and Russia have already announced voluntary supply cuts until the end of 2023, pushing oil prices to 10-month highs in late September before macroeconomic concerns pulled them dramatically lower again last week.

Despite US sanctions, Iranian crude exports have grown significantly this year, offsetting some of Russia's and Saudi Arabia's 1.3 million barrel per day voluntary cut.

Stricter US sanctions on Iran would threaten crude supplies and push up energy prices both globally and domestically, something President Biden will be keen to avoid ahead of a 2024 election.

The International Energy Agency said the conflict had not had a direct impact on oil supplies.

Russian President Vladimir Putin said the Organization of the Petroleum Exporting Countries and allies (OPEC+) coordination will continue "for the predictability of the oil market".

Current oil prices factored in the conflict and reflected the market's belief that risks posed by the clashes were not that high, said Russian Deputy Prime Minister Alexander Novak.

A not united Arab world

The scenario of the Arab world in 2023 is a lot different from what it was in 1973 – geopolitics and economics often converge these days – complicating things further.

Saudi Arabia's energy minister Prince Abdulaziz has said "the cohesion of OPEC+ should not be challenged. We have been through the worst, I don't think we will have to go through any terrible situation at all."

UAE has called Hamas' attacks on Israel a "serious and grave escalation" and also has condemned Netanyahu over Gaza hospital bombing. But that is as far as their action has been.

Iraq's oil ministry said that OPEC+, does not make knee-jerk reactions to market challenges.

Syria itself has been engulfed in a war of its own and has been in bed with Russia.

Meanwhile, Egypt and Jordan - two countries, which flank Israel on opposite sides and share borders with Gaza and the occupied West Bank, respectively, have not shown any assertion to Iran's call.

They have also replied with a staunch refusal to take in re fugees as desperate Palestinians in sealed-off Gaza try to find refuge under Israel's relentless bombardment. Jordan already has a large Palestinian population.

Egyptian President Abdel Fattah El-Sissi made his toughest remarks yet on 18 October, saying the current war was not just aimed at fighting Hamas, which rules the Gaza Strip, "but also an attempt to push the civilian inhabitants to ... migrate to Egypt."

He warned this could wreck peace in the region. El-Sissi also said a mass exodus would risk bringing militants into Egypt's Sinai Peninsula, from where they might launch attacks on Israel, endangering the two countries' 40-year-old peace treaty.

Egypt has pushed for Israel to allow humanitarian aid into Gaza, and Israel said that it would, though it didn't say when,

Jordan's King Abdullah II gave a similar message a day earlier, saying, "No refugees in Jordan, no refugees in Egypt."

As no clear scenario for how this war will end, their refusal is rooted in fear that Israel wants to force a permanent expulsion of Palestinians into their countries and nullify Palestinian demands for statehood.

Israel said it intends to destroy Hamas. But it has given no indication of what might happen afterwards and who would govern Gaza – raising concerns that it will reoccupy the territory for a period, fueling further conflict.

While war has always resulted in death and destruction, the compounding consequences spread beyond the regions of conflict and perpetuate through the years.