How Oil Shocks Shatter the Global Economy

By Marie Charrel

Posted today at 05:45

“Here comes the end of the endless world. » That was almost fifty years ago. Nathalie Dumont, however, remembers in detail the winter evening of 1973 when she heard these words evoking the oil shock, on the radio. “The temperatures were dropping, my mother said that we would have to save on everything again, like during the war, she says. For the first time, I was afraid of missing out. » Nathalie had just celebrated her 22nd birthday and, until then, she drove every day to the Faculty of Sciences in Grenoble, where she was studying. “I quickly moved in with a friend living closer to save gas. In the evening, we revise with hot water bottles on our knees, because we set the heating to a minimum. » But what she remembers most is the feeling of witnessing the twilight of an era. “I was convinced that, even if the economy recovered, my generation and, above all, the following would be done with recklessness. »

The surge in hydrocarbon prices that we have been witnessing for more than six months, brutally intensified by the war in Ukraine, has revived, in recent days, the memory of the energy crises of the 1970s. “As at the time, all certainties are shattered”, notes Michel Lepetit, researcher in economic history at the Interdisciplinary Laboratory for the Energies of Tomorrow (LIED), at the University of Paris-VII. Today’s gas shock is “comparable in intensity, in brutality, to the oil crisis of 1973”declared the Minister of the Economy, Bruno Le Maire, on March 9, during a conference.

In fact, the prices of the European reference gas, the Dutch TTF, jumped from 76 euros to more than 340 euros per megawatt hour (MWh), a historic record, between February 22 and March 8. On March 21, it was still hovering around 105 euros. Those of the barrel of Brent rose from 96.80 dollars to 130 dollars (from 87.60 euros to 117.70 euros) over the same period, an increase of more than 30%, before declining. Between January and March 1974, they had risen by 240%. Inflation peaked at 7.9% in February in the United States, and at 5.9% in the euro zone, still far from the peak of 12% observed in mid-1974. “The uncertainties about the outcome of the conflict are great, but, for the moment, the shock is less strong than fifty years ago”, tries to reassure Denis Ferrand, economist at Rexecode. Asked about the subject at a conference in Paris on Monday March 21, the President of the European Central Bank (ECB), Christine Lagarde, said she did not see, “on the horizon of 2022, neither 2023 nor 2024, of stagnation of the economy”, due to the good recovery of activity observed before the outbreak of the war.

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