$200 oil sounds terrifying. The data says otherwise.

Global oil prices have continued to surge despite the International Energy Agency’s announcement of the largest release of emergency reserves in history. At the time of writing, oil is hovering near USD 100 a barrel – and the forces driving it higher show no signs of easing.

The Strait of Hormuz, through which roughly a fifth of the world’s oil supply passes every day, is effectively closed. Gulf producers are shutting in production because they have nowhere to send their crude. Energy infrastructure across the region is under attack, and oil tankers have been targeted. Headlines are drawing comparisons to the 1970s energy crisis – and for the first time in decades, those comparisons do not feel like an exaggeration.

So how bad could this get?

Let’s not sugarcoat it. It could get worse. Iran’s Islamic Revolutionary Guard Corps has declared it would not allow “even one litre of oil” through the Strait, and has warned the world to expect oil at USD 200 a barrel.

In this article, we walk through exactly that scenario – what USD 200 oil would look like, what it would mean for the global economy, and what it would mean for your portfolio. We also look at what history tells us about investing through moments exactly like this one.

The answer may surprise you.

How we could get there

If the Strait of Hormuz remains closed for months – or if further military escalation damages additional Gulf production infrastructure – oil could climb well beyond USD 100. Prices of USD 150, USD 180, or even USD 200 a barrel are plausible.

That would be a record in nominal terms. But it is worth putting the number in context, because the world has experienced extreme oil shocks before.

During the 1973 embargo, oil quadrupled from USD 3 to nearly USD 12 a barrel – equivalent to roughly USD 80 in today’s money. During the 1979 Iranian Revolution, prices surged to about USD 40, or roughly USD 159 in today’s dollars. In 2008, oil peaked at USD 147 during the commodity boom – approximately USD 223 after adjusting for inflation. And in 2022, during the early weeks of the Russia-Ukraine conflict, Brent crude climbed to USD 128.

A move to USD 200 would be severe. But in inflation-adjusted terms, it would not be without precedent.

Table 1: Oil shocks in history: how the current crisis compares

What USD 200 oil would mean

Let’s be honest about the consequences. At USD 200 a barrel, we are talking about a severe economic shock – one that would be felt by almost everyone.

Consumers would be hit first. When energy costs spike, households are squeezed from two directions. They cut back on driving, heating, and travel to reduce their energy bills – what economists call demand destruction. And because energy still takes a larger share of their income, they have less left for everything else. Eating out, new appliances, clothing – discretionary spending contracts across the board.

Businesses would face a brutal squeeze. Airlines, shipping firms, manufacturers, and farmers all depend heavily on energy as an input. Some would absorb the costs. Others would pass them on to customers, feeding inflation further. Many would eventually cut jobs.

The broader economy would very likely tip into recession. Consumer spending, which drives the bulk of economic activity in developed countries, would contract. Business investment would stall. Unemployment would rise.

Central banks would face an impossible choice. Inflation would be surging from the energy shock, which normally calls for higher interest rates. But the economy would be weakening, which normally calls for lower rates. This painful combination – rising prices alongside falling growth – is called stagflation, and it is one of the most difficult environments for policymakers to navigate.

Stock markets would sell off as corporate earnings decline. With consumer spending falling and input costs rising, a drop of 30% to 40% or more from current levels would not be surprising.

If you have read this far and feel unsettled, that is understandable. We have just described a genuinely difficult scenario.

But stay with us, because the next part of this story is where it gets interesting.

Every crisis was a buying opportunity

The world economy survived every one of those oil shocks – and so did investors who stayed the course.

Every single time, those who remained disciplined and kept investing through the storm came out the other side in a stronger position. And we are not talking about investors who perfectly timed the bottom – nobody can do that reliably. We are talking about ordinary investors who simply continued putting a fixed amount of money into the market every month, through the good times and the bad. The kind of regular savings plan that many of you are already on.

Here is what happened in three of the most relevant crises in modern history.

The 1973 oil embargo: the closest parallel to today

In October 1973, OPEC imposed an oil embargo on the US in retaliation for its support of Israel during the Yom Kippur War. Oil prices quadrupled from roughly USD 3 a barrel to nearly USD 12 – the equivalent, in today’s money, of a move from USD 20 to USD 80. The US economy plunged into recession. Inflation soared above 12%. Long lines formed at petrol stations, and at one point, a fifth of stations had no fuel at all.

The stock market was devastated. The S&P 500 fell close to 50% from peak to trough. It took almost six years – until mid-1980 – for the market to recover to its pre-crash level.

For someone who invested a large lump sum at the peak and did nothing else, it was a long and painful wait.

But consider a different investor – someone contributing a fixed amount every month, regardless of what the market was doing. That investor was buying shares at progressively lower prices throughout 1973 and 1974. When the market was down 20%, their monthly contribution bought more shares. When it was down 40%, their money went even further. The shares accumulated at those deeply discounted prices became the highest-returning part of their entire portfolio.

The data bears this out. An investor who contributed a fixed sum of money a month into the S&P 500 starting from the crisis would have earned a total return of 6.8% after three years, and 13.5% after five – despite the market not fully recovering to its pre-crash level until 1980.

The 1990 Gulf War: a sharp shock and a rapid recovery

When Iraq invaded Kuwait in August 1990, oil prices surged roughly 135%, reaching around USD 41 a barrel – about USD 103 in today's money. The S&P 500 dropped nearly 14% as recession fears took hold.

An investor contributing monthly through this period was buying stocks at meaningful discounts for several months. They did not know when the conflict would end or when oil prices would normalise. What they did know was that their plan called for continued contributions – and they stuck with it.

The recession turned out to be mild and short-lived. The monthly contributor captured the full upswing on every share purchased at reduced prices during the sell-off. Within just one year of the crisis, this investor would already have gained 9.5%. And if they persisted with their regular savings plan, their returns would have grown to 21.2% after three years and 40.4% after five.

The COVID crash of 2020: terror, then triumph

In March 2020, the world faced something no one alive had experienced – a global pandemic that shut down entire economies almost overnight. The S&P 500 plunged about 34% from its February high to its March low in just over a month. Unemployment spiked to levels not seen since the Great Depression. Oil itself collapsed – in April 2020, US crude futures briefly turned negative for the first time in history, as demand evaporated so fast that producers could not give oil away.

The fear was overwhelming.

An investor contributing monthly through February, March, and April of 2020 was accumulating shares at a massive discount. They did not know a vaccine would arrive by year-end. They did not know governments would unleash trillions in stimulus. They were investing into uncertainty – the very same uncertainty that was making everyone else want to stop.

The S&P 500 recovered its entire loss by mid-August 2020, just five months after the bottom. Within one year, this investor had gained 18.9%. The three-year return was a more modest 4.3%, weighed down by the 2022 sell-off driven by rising interest rates – a reminder that the path is rarely smooth. But by the five-year mark, returns had climbed to 48.4%. Even someone who began contributing at the pre-crash peak in February 2020 – the single worst possible moment to start – still came out well ahead, because their continued monthly contributions at lower prices dragged their average cost down.

Table 2: How disciplined investors fared through every major oil crisis

The real risk is not the crisis

Some will argue that this crisis is different – and in many ways, it is. The physical closure of the Strait of Hormuz is unprecedented. But in every case, the crisis felt unprecedented at the time. In every case, there were credible reasons to believe things could get worse. And in every case, disciplined investors who kept contributing were rewarded.

The question is not whether the crisis is unique. They all were. The question is whether the principle of disciplined investing through uncertainty has ever failed over a three-to-five year horizon. It has not. The pattern is remarkably consistent.

The biggest risk in a crisis is not the crisis itself. It is the temptation to abandon your plan at precisely the wrong moment.

The investor who sold in March 2020 and waited for things to settle down missed one of the fastest and most powerful recoveries in market history. The investor who stopped contributing during 2008 missed the chance to buy shares that would more than triple over the following decade.

A regular savings plan is powerful precisely because it takes the decision out of your hands at the moments when your instincts are least reliable. You do not need to be brave. You do not need to predict the future. You just need to keep doing what you are already doing.

For those ready to put this into practice, we outline below the markets and products we continue to recommend. Our conviction in these picks has not changed throughout this crisis — if anything, the recent sell-off has made the entry points more attractive. For investors looking to hedge against a prolonged oil supply shock, we also include options for direct energy exposure.

Table 3: Recommended products

To capture long-term returns, you have to be willing to endure periods of short-term discomfort. That is the trade-off. It has always been the trade-off.

The moments when investing feels the most frightening are, historically, the moments when future returns are the highest. That is not a coincidence. 

You do not need to enjoy the ride. You just need to stay on it.

Related articles:

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Middle East war rocks Asian markets, but don’t let fear drive your trades

Oil is volatile again – here are two practical ways to get exposure

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds positions in iShares Hang Seng Tech ETF and Global X Asia Semiconductor ETF.