Looking at several Middle East-related conflicts over the past half-century on a timeline, the &#34;surge&#34; in oil prices is not always linked to the intensity of the war. It is more of a function of two factors: whether a real supply disruption occurred, and whether the disruption could be quickly filled by other oil-producing countries, strategic reserves, and a decline in demand. This in-depth macro report from Changjiang Securities reviews six conflicts and connects oil prices—inflation—growth—the Federal Reserve—and asset trading into a single chain, making it more useful than examining individual events.
Yu Bo, a macro analyst at Changjiang Securities, states directly in the report: &#34;The intensity of oil supply disruption caused by geopolitical conflicts determines the magnitude of oil price shocks, while the recovery/substitution capacity of supply and potential demand determine the subsequent oil price level.&#34; This sentence essentially summarizes the &#34;discriminant&#34; of the entire article: the starting point of the shock depends on supply disruption, and whether the shock evolves into a long-term problem depends on recovery and substitution.
The historical divisions are also clear. During the two oil crises of the 1970s, oil prices increased &#34;manifold&#34; and dragged the US into stagflation. In contrast, during the 1990 Gulf War, the 2003 Iraq War, and the 2011 Libyan Civil War, although oil prices rose, they tended to recede after supply was hedged or expectations were met. By the 2022 Russia-Ukraine conflict, the oil price surge coincided with &#34;high inflation constraints,&#34; leading not to easing to save growth, but rather to intensified tightening logic.
On the trading front, the main theme often shifts from &#34;inflation&#34; (inflation/reflation) to &#34;stagflation&#34; (slowing growth/recession). However, the Fed's actions do not follow a fixed script—the key is whether inflation was high at the time and whether inflation expectations were unanchored. The report also provides some time windows: Supply shocks typically bottom out in about 1-3 months, and oil prices often peak in about 2-4 months; the peak and trough of inflation and PMI depend more on how long the oil price surge lasts and which side policy ultimately takes.
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<h2>The Magnitude of Oil Price Increases is Determined by &#34;How Severe the Supply Disruption Is,&#34; Not &#34;How Big the Conflict Is&#34;</h2>
The report quantifies &#34;supply disruption&#34; quite intuitively.
During the first oil crisis, Arab oil-producing countries' &#34;production cuts + embargo&#34; led to a maximum decrease of 6.7% in global crude oil production compared to pre-war levels. Calculated based on global consumption at the time, the demand gap reached 6.9%, and oil prices saw a maximum increase of 3.8 times. The second oil crisis was also divided into two phases: during the Islamic Revolution combined with inventory hoarding, Iran's production plummeted by 88% from 6.09 million barrels/day to 730,000 barrels/day, leading to a 3.7% drop in global production. During the Iran-Iraq War phase, global production further declined by 6.1%, with a calculated demand gap of 5.6% and a maximum oil price increase of 2.2 times.
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In contrast, the &#34;hard supply disruptions&#34; in later conflicts were more easily hedged. For instance, during the 2003 Iraq War, the report records a maximum global supply decrease of only 2.4%; during the 2011 Libyan Civil War, the maximum decrease in global crude oil production was only 3%. The Russia-Ukraine conflict was even more extreme: despite policies like &#34;banning imports of Russian oil&#34; driving up risk premiums, the report estimates the maximum decrease in global crude oil production was only 0.1%, with oil prices rising a maximum of 32% compared to pre-war levels.
This also explains a point the report repeatedly emphasizes: When no substantial supply gap is formed, the market's reaction to geopolitical conflicts is more of an emotional pricing of &#34;potential supply disruption risk,&#34; which is often reversed later when it's confirmed that &#34;supply has not been damaged.&#34; The report singles out such sentiment-driven events in its tables, including the 2001 Afghanistan War/9/11 attacks, the 2011 Syrian Civil War, the 2014 ISIS attacks on Iraq, the Yemen Civil War, the 2020 US killing of Soleimani, the 2023 Israel-Palestine conflict, and the 2024 Iran-Israel mutual attacks. The core commonality is that the market initially prices in the worst-case scenario, but if actual supply is not breached, oil prices are unlikely to be &#34;persistently revalued.&#34;
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b80d15b9-97ea-4e8c-a0e9-feb4fceb429d.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b80d15b9-97ea-4e8c-a0e9-feb4fceb429d.png"/>
<h2>First and Second Oil Crises: What Truly Dragged the US into Stagflation Was Unanchored Expectations</h2>
The report mentions an often-overlooked detail about the first oil crisis: it was not the starting point of US inflation. Before October 1973, US inflation was already rising, driven by demand overheating from loose monetary and fiscal expansion, combined with supply and institutional factors such as the collapse of the Bretton Woods system, rising food prices, and the lifting of price controls. The embargo acted more like an &#34;amplifier,&#34; pushing existing inflationary pressures into a more unmanageable territory. The corresponding policy path was not a simple acceleration or deceleration: initially, tightening was eased, then re-tightened after the embargo eased, and finally, turned to easing as the recession deepened.
The key to the second oil crisis was the &#34;deterioration of the expectation mechanism.&#34; The report explains the turning point of the Volcker era quite clearly: the real danger was not just the level of oil prices, but how high oil prices, through the &#34;wage-cost-price&#34; chain and the expectation mechanism, reinforced inflation stickiness. The market began to question the ability to control inflation and policy credibility, and the creditworthiness of the US dollar also came under pressure. Thus, the Federal Reserve's response in October 1979 was not a gentle rebalancing, but a shift to a policy framework focused on &#34;controlling money and credit and rebuilding anti-inflation credibility,&#34; allowing for significant interest rate fluctuations.
Looking at these two crises together, the report is essentially answering an old question: Why did supply shocks in the 1970s evolve into long-term stagflation? The answer lies not only in &#34;how much oil prices rose&#34; but also in whether inflation expectations at the time could be re-anchored.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/eb3d7589-cf31-453b-84f2-b575d7d0ee72.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/eb3d7589-cf31-453b-84f2-b575d7d0ee72.png"/>
<h2>1990, 2003: When Supply Can Be Replaced, Oil Prices Return to Pre-War Levels on Their Own</h2>
The third oil crisis (Gulf War) was not mild in terms of data: Iraqi and Kuwaiti production dropped to zero, leading to a 6% decrease in global crude oil production and a calculated demand gap of 5.5%. Oil prices saw a maximum increase of 93%. However, it did not lead to long-term stagflation because &#34;hedging came quickly&#34;—other oil-producing countries increased output, strategic petroleum reserves provided a buffer, and expectations of no further escalation of the war were repaired, causing oil prices to quickly fall back to near pre-war levels after a temporary surge.
The macroeconomic outcomes were also different: The report notes that US CPI year-on-year rose temporarily from around 5% to about 6% before falling. The Federal Reserve's policy focus quickly shifted from preventing inflation to preventing recession, and it began to accelerate interest rate cuts starting in October 1990.
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The 2003 Iraq War served more as an &#34;expectation management lesson.&#34; The report emphasizes that oil price increases mainly occurred before the war (cumulative increase of about 30%-50% from November 2002 to February 2003). The outbreak of the war actually marked a turning point for oil prices to peak and then decline: the conflict progressed quickly, the supply gap did not widen, and the market shifted from &#34;pricing the worst-case scenario&#34; to &#34;risk realization.&#34; On the macroeconomic front, the main issue for the US at the time was the weak recovery and lagging employment following the bursting of the dot-com bubble. Core inflation remained low, and the Federal Reserve did not turn to tightening due to the oil price increase. Instead, it lowered the federal funds rate to 1% in June 2003 and maintained it until mid-2004.
Taken together, these two historical periods convey not that &#34;oil price shocks are not scary,&#34; but rather that: when supply substitution and policy tools can be implemented quickly, it is difficult for oil prices alone to drag the macroeconomy into long-term imbalance.
<h2>Libya and Russia-Ukraine: Similar Oil Price Surges, but Monetary Policy Context Determines the &#34;Consequences&#34;</h2>
During the Libyan Civil War, the report attributed the oil price increase to &#34;three forces&#34;: the demand recovery provided a trend basis, the second round of Quantitative Easing (QE) initiated in November 2010 amplified liquidity and inflation expectations, and geopolitical risks further raised premiums. Oil prices saw a maximum increase of 23% compared to pre-war levels, but the global supply shock was not significant (maximum decrease of only 3%).
More crucial was the macroeconomic backdrop: the US was still in the recovery phase after the subprime crisis, with high unemployment. The rise in inflation was mainly concentrated in energy items, while core inflation and long-term expectations remained relatively stable. The Federal Reserve's policy focus remained on stabilizing the economy and employment. The trading theme thus shifted from &#34;liquidity-driven reflation&#34; to &#34;slowing growth/recession expectations,&#34; rather than inflation overriding everything else.
The Russia-Ukraine conflict, conversely, was different. The report clearly states: the basis for this round of oil price increases was the tight supply-demand balance due to demand recovery and lagging supply recovery after the public health crisis. The conflict and sanctions further pushed up oil prices (a maximum increase of 32% compared to pre-war levels). However, the macroeconomic constraint came from inflation: US CPI rose from 7.6% in January 2022 to a high of 9.1% in June. Against this backdrop, the conflict did not push policy towards easing, but rather compressed options—the Federal Reserve began tapering in November 2021, started raising interest rates in March 2022, and increased rates by a cumulative 425 basis points within the year. The market's trading logic also quickly shifted from &#34;risk aversion and inflation shock&#34; to &#34;monetary policy tightening.&#34;
This comparison is stark: oil price increases themselves do not automatically dictate the Fed's next move. The Fed looks at inflation levels and expectation constraints, not news headlines.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/47fd8102-ec82-4e87-88c0-ce04e4a2c352.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/47fd8102-ec82-4e87-88c0-ce04e4a2c352.png"/>
<h2>Trading Shifts from &#34;Inflation&#34; to &#34;Stagflation&#34; are Common, but the Fed Doesn't Always Cooperate</h2>
The report describes the shift &#34;from inflation to stagflation&#34; as a commonality across various shocks: the initial phase often involves trading inflation and risk aversion (oil, gold, USD, or US Treasuries), followed by the emergence of growth pressures, and a shift in trading focus to recession and policy changes. However, it also specifically warns that rising inflation and economic pressure do not necessarily mean the Federal Reserve will definitely raise or lower interest rates—it depends on whether inflation was high at the time and whether expectations were unanchored.
In terms of timing, the report provides several benchmarks that can be directly compared: Supply shocks typically bottom out in about 1-3 months, and oil prices usually peak in about 2-4 months; in several instances where oil prices peaked in 3-6 months (the third oil crisis, the Iraq War, the Russia-Ukraine conflict), US inflation also tended to peak in about 3-6 months; in cases where oil prices peaked and stagnated at high levels for over 6 months (the first and second oil crises, and the Libyan Civil War), inflation peaks were delayed to 12-18 months. The trough of manufacturing PMI is more &#34;dependent on policy&#34;: when oil price surges were short-lived and monetary policy was loose to stabilize the economy, PMI bottomed out in about 5-6 months; when oil price rises were prolonged or policy was tight, PMI bottoming out was extended to 16-20 months.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/845e763b-35d0-44db-a6cf-a0dc4f509544.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/845e763b-35d0-44db-a6cf-a0dc4f509544.png"/>
The report's concluding risk warnings are worth understanding in their original context: historical experience itself has limitations. The transmission mechanism of oil prices to inflation and the economy can change with energy intensity, wage-price dynamics, the anchoring of expectations, and policy credibility. Attributing every Federal Reserve response solely to oil prices and inflation/growth may overlook the policymakers' philosophies, internal disagreements, and external constraints. Asset prices, moreover, are subject to multiple factors, and retrospective analysis can lead to &#34;over-attribution.&#34;
In other words, this report provides a more rigorous way of asking questions: first, inquire about supply disruptions, then about substitution and recovery, and finally, place inflation levels and expectation states within the same framework. If these four steps are not completed, the market's initial reaction to oil prices is often merely emotional.
Risk Disclosure and Disclaimer
Markets carry risks, and investment requires caution. This document does not constitute personal investment advice, nor does it consider the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this document are suitable for their specific circumstances. Investment based on this is at the user's own risk.

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This macro in-depth report from Changjiang Securities analyzes the impact of six Middle East conflicts over the past half-century on oil prices, inflation, and market trading logic. The report points out that oil price volatility is closely related to actual supply disruptions and their recovery capabilities. Historically, the oil crises of the 1970s led to sharp oil price increases, while subsequent conflicts had relatively smaller impacts. The 2022 Russia-Ukraine conflict exacerbated high inflation, reinforcing tightening logic. The report also quantifies the impact of supply shocks on oil prices, emphasizing that "supply disruption" is the key factor determining oil price fluctuations

- The report analyzes the historical relationship between geopolitical conflicts and oil prices, emphasizing that price surges depend more on supply disruptions than on the intensity of warfare.  
- It highlights that while past conflicts like the 1970s oil crises caused significant price spikes due to severe supply cutbacks, more recent conflicts, including the Iraq war and the Russia-Ukraine conflict, had milder impacts due to quicker supply adjustments.  
- The analysis suggests that without substantial supply gaps, market reactions tend to be driven by sentiment, often reversing once actual supply remains unaffected.

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Fifty Years of Oil Crises: How Six Middle East Conflicts Reshaped Oil Prices, Inflation, and Market Trading Logic