Oil Shock 1973
The 1973–74 OPEC embargo quadrupled oil prices, fused inflation with a growth shock (stagflation), and ended the last illusions of the post-war energy-cheap regime.
Definition
October 1973 embargo and production cuts hit an already inflationary world after Bretton Woods collapsed. Real incomes fell in importers; petrodollars recycled into syndicated loans (the 1982 fuse). Policy struggled with a supply shock the Phillips curve did not advertise.
Why it matters
It is the template for an adverse terms-of-trade shock: easing can worsen inflation, tightening worsens the slump. 2022’s energy spike was a rhyme, not a copy.
Case
US price controls and lines at pumps; 1974–75 recession; a second shock in 1979 (Iran). Volcker’s later war on inflation is the delayed institutional response.
How to read it
Split the relative-price shift from the wage-price follow-through. If second-round effects are contained, it is a level; if not, it is a regime.