https://seanstinson.substack.com/p/the-oil-shock-and-the-coming-reset
In 1973, the world learned a terrible lesson. A 7 percent cut in global oil supplies, lasting barely six months, triggered a decade of economic agony. Stagflation—that crippling marriage of high inflation and high unemployment—took root across the industrialised West. Factories closed. Workers walked the streets. Governments lurched from one emergency to another, powerless to stop the bleeding. The 1973 oil shock was a small wound that became gangrenous. It was a warning that the modern world had built itself on a foundation of cheap energy, and that any interruption to that flow would produce consequences wildly disproportionate to the physical trigger.
That was then. This is now. And the lesson has not been learned.
The current war between the United States, Israel, and Iran has severed the Strait of Hormuz, a choke point for twenty to twenty-five percent of the world’s oil and gas. By early April of this year, roughly 17.7 million barrels of daily seaborne supply—approximately 17 percent of global demand—had been cut off. The Bab al-Mandab strait is threatened. Refineries lie damaged across the region. Production fields are landlocked, their output trapped behind closed straits and damaged infrastructure. Even if the fighting stopped tomorrow morning, restoring full flow would take months, perhaps years. Energy logistics do not work like a spigot. Tanks must be cleared. Routes must be re-established. Supply chains, once broken, do not simply snap back into place.
The consequences of this shock are already baked in. Not possible. Not likely. Baked in.
To understand why, we have to go back to 2008. When the financial system nearly collapsed, the proper response would have been a cleansing: debt write-downs, bank failures, a sharp but necessary recession that cleared out the rot. Instead, central banks chose zero interest rates and unlimited quantitative easing. They inflated asset bubbles, propped up zombie companies, and pushed global debt from $150 trillion to over $300 trillion. They forestalled the correction. For fifteen years, they refused to let the system cleanse itself. Now the system will cleanse itself anyway.
The current oil shock has landed on a system with no ammunition left. Interest rates are already low. Balance sheets are already bloated. Debt is everywhere, and nowhere more so than in the sovereign bonds of major economies. Some economists—not doomsayers, but serious modellers like Steve Keen, Michael Hudson, and Nouriel Roubini—believe the coming downturn could exceed the Great Depression. In the 1930s, debt was largely private and could be defaulted upon. Banks failed, yes, but the underlying productive capacity remained. Today, debt is sovereign, corporate, household, and shadow-banking intertwined. A cascade would cross borders instantly. There is no gold standard to re-anchor currencies. There is no Bretton Woods waiting in the wings. There is only a brittle, over-leveraged, profoundly fragile system about to be hit by an energy shock unlike anything the world has ever seen.
