Iran War-Triggered Oil Shock Intensifies 1970s-Style Stagflation Concerns But Why It Could Be Different This Time

Key Highlights

• Oil prices surged, and concerns about high inflation and slowing economic growth intensified in the past week.
• Investors worry about the shadow of stagflation and its impact on portfolios, but there are significant differences between 2026 and the 1970s.
• During the 1970s, oil price spikes combined with a weakening dollar drove gold prices higher, but this has not occurred in the current cycle.

As tensions between the U.S. and Israel over Iran impact markets and push oil prices higher, fears of a 1970s-style stagflation are resurfacing.

The combination of high inflation and low growth typically hits both stocks and bonds. The last time stocks and bonds declined together was in 2022, when Russia’s invasion of Ukraine pushed oil prices above $120 per barrel.

For investors concerned about stagflation risks and their impact on portfolios, history offers some guidance.

Data from Kepler Macro shows that in 1973, amid OPEC’s oil crisis, the U.S. economy entered recession, with the S&P 500 plunging over 40%, marking a “lost decade” for large-cap stocks.

Some investors compare the current situation to the 1970s to gauge market direction in 2026, but there are several key differences.

Insights from Gold and Small Caps

Recent oil price surges have not, like in 1973, driven gold prices significantly higher amid a weakening dollar. In fact, the dollar has strengthened against most major currencies.

Julian Howard, head of multi-asset at GAM, told CNBC via email:

“Gold may be a good hedge against uncertainty, but I guess many investors didn’t expect gold to perform poorly in an environment where the dollar is strong.”

He noted that the U.S. is now the world’s largest oil producer and major exporter, which greatly reduces its vulnerability to Middle Eastern supply disruptions.

“Oil prices surging actually improve U.S. trade conditions and push the dollar higher, which in turn suppresses gold prices,” he added.

Small caps also surged significantly in the 1970s. Bank of America Global Research shows that from 1975 to 1977, small caps were the best-performing asset class for three consecutive years.

Howard said this rally occurred after a “brutal” market crash. Expecting small caps to outperform in the 2020s assumes a market crash first, which has not yet happened.

The 1970s Have Not Repeated

Syz Group Chief Investment Officer Charles-Henri Munsch said that the 1970s were characterized by deep-rooted inflation, stagnation, and policy failures, none of which are present today.

In a recent report, he wrote:

“It’s not the 1970s now, but it could be the start of a similarly significant turning point. This might mean a continued shift from financial assets to real assets, and a long-overdue re-pricing of the real economy supporting all economic activity.”

Munsch told CNBC that if capital shifts from mega-cap tech stocks to hard assets, physical assets and related industries (energy, copper, steel, key minerals) could become the main beneficiaries.

Currently, oil prices remain below the peaks seen after the Russia-Ukraine conflict and OPEC crisis.

At 10:10 a.m. Eastern Time, Brent crude futures fell 0.7% to $99.78 per barrel (after closing above $100 on Thursday); U.S. West Texas Intermediate futures declined 1.3% to $94.42 per barrel.