"History doesn't repeat… but it rhymes." — Mark Twain

Early this morning, President Trump posted on Truth Social that the U.S. Navy would begin blockading all ship traffic entering or leaving the Strait of Hormuz, effective immediately.

The announcement came hours after Vice President JD Vance left Islamabad without a deal, Tehran having refused to halt its nuclear program and demanding war reparations and control of the strait as the price of peace. WTI crude jumped more than eight percent in the overnight session. Dow futures dropped over 250 points before the opening bell.

WTI Crude: $104.40 (+8.14%) | Brent: $102.30 (+7.43%) | S&P 500 Futures: -0.6% | Strait Traffic: ~4% of normal

This is not a threat or a deadline. The blockade is live. And the last time a geopolitical shock of this kind — a sudden, forced cutoff of Middle Eastern oil supply tied to a U.S.-Israel conflict — hit the global economy, the world spent most of a decade trying to dig out. That was October 1973. The playbook written then is the one investors are reaching for right now.

It started in the desert before dawn on October 6th, 1973, a Saturday and the holiest day of the Jewish calendar. Egyptian tanks rolled across the Suez Canal in a coordinated assault timed to catch Israel's military off guard. Syria hit simultaneously from the north. By the time Washington grasped the full picture, Israel was fighting for its life on two fronts. Nixon ordered a massive airlift of weapons — tanks, ammunition, artillery — and within days the tide had turned. But the Arab world was watching.

On October 17th, the eleven Arab members of OPEC gathered in Kuwait City and voted to cut oil production by five percent per month until Israel withdrew from occupied territories and Palestinian rights were restored. Four days later, Saudi Arabia went further. King Faisal, who had warned Kissinger personally that American support for Israel would force his hand, announced a total embargo on oil exports to the United States. The Netherlands and a handful of other pro-Israel nations were added to the list. The weapon was not tanks or missiles. It was a valve.

The effect was nearly immediate. In the United States, the posted price of a barrel of crude went from roughly three dollars in early October to nearly twelve dollars by January. Gas stations ran dry. Lines stretched around the block in New Jersey, Ohio, California — anywhere people needed to drive to work. Signs went up: NO GAS. Some stations rationed by license plate, odds one day, evens the next. Truckers blocked highways in protest. Nixon went on television and asked Americans to drive less, lower their thermostats, and fly less for the holidays. The country that had never really questioned its access to cheap energy was suddenly very, very aware of where it came from.

The S&P 500 lost roughly 45 percent from its January 1973 peak to its October 1974 trough — one of the worst bear markets in American history. Inflation, already climbing before the embargo hit, went to 12.3 percent in 1974. The Federal Reserve faced the same trap it always faces when an oil shock arrives: raise rates to kill inflation and you make the recession worse; hold rates and inflation runs. In 1973 and 1974, they did not act decisively enough, and the country paid for it with years of stagflation — the word economists coined because the economy had found a way to be both stagnant and inflationary at the same time, which was supposed to be impossible.

The embargo lasted five months, lifting in March 1974 after diplomatic maneuvering by Kissinger. But the effects did not lift with it. The price of oil never went back to three dollars. The economic damage persisted through most of the decade. The world that came out the other side — with its fuel efficiency standards, its strategic petroleum reserves, its entirely restructured relationship with OPEC — looked almost nothing like the world that went in.

In 1973, the weapon was a political embargo. In 2026, it is a naval blockade. The mechanism is different. The effect on a barrel of oil trying to reach a refinery is exactly the same.

The 1973 pattern is the right map. But it has four roads that don't exist on today's version.

When the Arab embargo lifted in March 1974, there was a brief, genuine sense of relief. Nixon was still president, barely. The Watergate hearings were consuming Washington. The stock market had already been falling for over a year and had months of selling left to go. The lifting of the embargo did not stop any of that. Oil prices did not return to pre-embargo levels. The structural damage had already been done. The inflation psychology was in place. Workers demanded higher wages to cover higher energy costs. Companies raised prices to cover higher input costs. The Fed, moving too late and too timidly for too long, let it run.

By late 1974 the unemployment rate in the United States had climbed toward nine percent. Growth was contracting. The word "stagflation" entered the economics textbooks as a permanent term for a combination that had previously been considered self-correcting. It wasn't. The United States spent the rest of the 1970s fighting an inflation problem that would not be fully broken until Paul Volcker raised interest rates to 20 percent in 1981 and held them there through a brutal two-year recession that finally killed the inflationary psychology for good.

The smart money in late 1973 and through 1974 did a few things. It moved into hard assets — oil stocks, gold, real assets generally. It shortened its duration in bonds, because inflation destroys fixed-rate paper. It got out of consumer discretionary names and airlines and anything with a cost structure that ran on cheap energy. And it understood that the central bank was going to be stuck — unable to cut rates to support the economy because inflation was the bigger political problem — which meant that valuations on growth stocks, priced for a low-rate world, had a long way to fall.

Right now, in the first week of earnings season, the major banks report starting tomorrow. They will tell investors for the first time in any official capacity what six weeks of a wartime oil shock has done to their loan books, their energy trading desks, and their economic outlooks. That's the next fulcrum. The 1973 template says that by the time the banks are reporting bad news, the damage to the real economy is already three to six months ahead of what the numbers show.

In 1973, the investors who waited for the embargo to lift before acting gave back most of their gains. The structural shift — higher energy costs baked in, growth multiple compression, central bank paralysis on rate cuts — was already priced into the economy before the political resolution came. The Strait of Hormuz reopening, if and when it comes, will not be the all-clear. It will be the beginning of pricing in what the disruption already did. The question worth sitting with is not when the strait opens. It is what the world looks like after six more weeks of $100 oil, and whether earnings season this week gives any sign that company management teams have modeled that scenario honestly.

The producer price index for March drops Tuesday morning, the first inflation read since the blockade went live — watch for the number to come in above expectations and watch how the Fed's public communications shift in response. In October 1979, the Fed waited too long to respond to a second oil shock and spent three years cleaning up the inflation that followed; the question Tuesday is whether this Fed learned that lesson, or whether the old habits are already forming.