Oil shock risk

Extracted Attributes

• 1973 Price Increase

  300% (from $3 to $12 per barrel)

• Economic Consequences

  Persistent inflation, delayed rate cuts, and market instability

• Historical Precedent 1

  1973 Oil Crisis (First Oil Shock)

• Historical Precedent 2

  1979 Oil Crisis (Second Oil Shock)

• Contemporary Risk Factors

  Red Sea shipping disruption, SPR depletion, and Middle East conflict expansion

• Predicted Economic Outcome

  Bumpy Landing

Timeline

• Start of the Yom Kippur War, which served as the catalyst for the first oil shock. (Source: Wikipedia)

  1973-10-06

• OAPEC announces a total oil embargo against countries supporting Israel, including the US and UK. (Source: Wikipedia)

  1973-10-17

• OAPEC lifts the oil embargo after oil prices rose by nearly 300%. (Source: Wikipedia)

  1974-03-01

• The Iranian Revolution begins, leading to the second oil shock. (Source: Wikipedia)

  1979-01-16

• US strikes in Yemen against Houthi rebels escalate geopolitical tensions and Red Sea shipping risks. (Source: Document a7a96b3e-b0a7-41e7-a179-b42068a2117b)

  2024-01-11

1973 oil crisis

In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Egypt and Syria launched a large-scale surprise attack in an ultimately unsuccessful attempt to recover the territories that they had lost to Israel during the 1967 Six-Day War. In an effort that was led by Faisal of Saudi Arabia, the initial countries that OAPEC targeted were Canada, Japan, the Netherlands, the United Kingdom, and the United States. This list was later expanded to include Portugal, Rhodesia, and South Africa. In March 1974, OAPEC lifted the embargo, but the price of oil had risen by nearly 300%: from US$3 per barrel ($19/m3) to nearly US$12 per barrel ($75/m3) globally. Prices in the United States were significantly higher than the global average. After it was implemented, the embargo caused an oil crisis, or "shock", with many short- and long-term effects on the global economy as well as on global politics. The 1973 embargo later came to be referred to as the "first oil shock" vis-à-vis the "second oil shock" that was the 1979 oil crisis, brought upon by the Iranian Revolution.

Web Search Results

• Systemic risk and oil price volatility shocks

  We examine the impact of different types of oil price volatility shocks on firm’s systemic risk using a large panel dataset of US firms. Oil price volatility shocks occur due to changes in supply or demand for oil, or through idiosyncratic fluctuations of oil prices. Our findings indicate that the supply-driven or idiosyncratic oil price volatility shocks reduce systemic risk, whereas demand-driven shocks have the opposite effect. Large-cap and high-beta firms amplify the impact of oil price [...] volatility shocks on firms’ systemic risk. Importantly, firms with extensive supply chain networks exacerbate systemic risk when facing demand-driven oil price volatility shocks. [...] Demand-driven oil price volatility shocks increase systemic risk. • Results are amplified for large-cap, high-beta and firms with extensive supply chains. ## Abstract

• 1973 oil crisis - Wikipedia

  shock" vis-à-vis the "second oil shock" that was the 1979 oil crisis, brought upon by the Iranian Revolution.

• Geopolitical risk and oil prices - European Central Bank

  Geopolitical shocks can have an impact on oil prices through lower economic activity or higher risks to commodity supply. In principle, geopolitical risk can affect commodity and oil prices through two main channels. First, higher geopolitical tensions act as a negative global demand shock, because these tensions increase uncertainty about the economic outlook, which negatively affects consumption and investment and potentially disrupts international trade. Combined, these forces lead to a [...] geopolitical shocks. However, if the countries involved are key producers in global oil markets, the risks to oil supply could generate significant upward pressure on prices. This hypothesis can be tested by estimating the response of Brent prices to country-specific, as opposed to global, geopolitical shocks. To this end, Chart B also reports the estimated elasticities of the oil price to geopolitical shocks originating in some of the largest oil producers (the United States, Saudi Arabia, [...] On average, a global geopolitical shock puts downward pressure on the oil price. The reaction of oil prices – as measured by the Brent variety – to global geopolitical shocks can be identified with a VAR model, netting out the response of oil producers and controlling for global activity and the financial cycle. The model covers the period from January 2000 to October 2023 and is estimated with Bayesian methods. Chart B plots the initial and three-month estimated responses of the Brent price to

• Oil shocks and global economy - ScienceDirect.com

  This paper analyzes how global economic activity reacts to shocks in the crude oil market, allowing that such reactions may change over time by using a Time-Varying Parameter Vector Autoregression model. Our findings show that an unanticipated disruption in oil supply leads to a relevant decline in global economic activity at any period of time considered (1973:08–2019:06) and at any response horizon, with impacts being relatively similar over time. An unexpected expansion in aggregate demand [...] economic activity, but oil consumption-demand shocks do not. [...] © 2022 The Author(s). Published by Elsevier B.V.

• Maduro, Venezuela, The U.S.—And The Oil Shock China Can't Price ...

  Venezuelan President Nicolás Maduro was captured by U.S. special forces in Caracas early on January 3 following airstrikes and explosions around the capital, according to multiplenews outlets. Within hours, tankers in the Caribbean started altering course. By midday, the diesel crack looked like it was widening. This suggests the market isn't pricing a global supply shock, but the specific risk of a heavy sour crude squeeze. [...] Maduro, Venezuela, The U.S.—And The Oil Shock China Can’t Price In [...] Position managers at Shandong’s teapots face an immediate question: Where do replacement barrels come from?