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After nearly six weeks, the Iran war has become the most severe disruption to global oil markets in decades. Oil prices have risen by as much as 40 percent, and Iran’s blockade of the Strait of Hormuz has decimated supply, affecting 20 percent of global petroleum consumption and roughly 25 percent of the oil trade by sea. Even with a temporary cease-fire, the damage done so far will have profound, lasting consequences for the global economy.

Some analysts have drawn comparisons of the current moment to the oil crises of the 1970s, which were also driven by geopolitical shocks in the Middle East. The first of these began on Oct. 6, 1973, when Egypt and Syria launched a surprise attack on Israel, prompting the United States to resupply Israeli forces. In response, Arab members of OPEC cut production and imposed an embargo on exports to the United States, the Netherlands, and other countries supporting Israel.

After nearly six weeks, the Iran war has become the most severe disruption to global oil markets in decades. Oil prices have risen by as much as 40 percent, and Iran’s blockade of the Strait of Hormuz has decimated supply, affecting 20 percent of global petroleum consumption and roughly 25 percent of the oil trade by sea. Even with a temporary cease-fire, the damage done so far will have profound, lasting consequences for the global economy.

Some analysts have drawn comparisons of the current moment to the oil crises of the 1970s, which were also driven by geopolitical shocks in the Middle East. The first of these began on Oct. 6, 1973, when Egypt and Syria launched a surprise attack on Israel, prompting the United States to resupply Israeli forces. In response, Arab members of OPEC cut production and imposed an embargo on exports to the United States, the Netherlands, and other countries supporting Israel.

Global shortages and a near quadrupling of oil prices resulted by 1974. A second shock followed in 1979, when the Iranian revolution sharply curtailed output from what was one of the world’s largest oil producers, driving prices up by roughly 250 percent. At first glance, today’s price increases appear relatively modest. But the comparison is misleading: Despite sharing the same epicenter, there are striking differences between the crises.

For one, real oil prices—adjusted for inflation—were far lower at the onset of the 1973 crisis, meaning that today’s 40 percent rise translates into a substantially larger absolute cost shock in U.S. dollar per barrel terms than raw percentages suggest. Moreover, the global economy enters this crisis........

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