Why the Iran War Hasn't Crashed the Economy
Matt Stoller
Why the Iran War Hasn't Crashed the EconomyIn the 1970s, governments prepared for oil shocks. It turns out, stockpiling and diversification works, which is probably why economists hate doing it.
In early 2020, I started to panic over Covid, and our fragile supply chain situation. In February of that year, before it was consensus that Covid was even a threat to the U.S. I said I expected shortages of basic goods. I was, as far as I know, the first person to make that prediction. And sure enough, within a year, we had a lack of everything from nitrile gloves to black pipe to toilet paper. It was a crisis, and showed the perils of a just-in-time delivery system of globalization. In February of this year, when the U.S. attacked Iran, it looked like something similar might happen. The Strait of Hormuz carries 20% of hydrocarbons, as well as adjacent products like fertilizer. Oil analysts believed that keeping that waterway closed for more than 100 days would surely bring a crisis, oil at $150 or $200/barrel at least. I had no reason to doubt that consensus, and the Covid shortages were fresh in my mind. And yet, that didn’t happen, or at least, so far it hasn’t.
Why not? Well, one reason is we have drawn down significantly on our oil stockpiles, both private and public. There was a lot of oil in various storage tanks and floating in oil tankers when the war occurred. And there are public reservoirs as well. For instance, you might hear panicky comments today about the collapse of the U.S. Strategic Petroleum Reserve, which is lower than it has been since 1983.
That seems bad. Except that… well, we have a Strategic Petroleum Reserve! During Covid, we didn’t have a nitrile glove reserve, or a black pipe reserve, or a toilet paper reserve. But going into this war with Iran, the government did have a lot of stored up oil - that’s the reason things didn’t collapse. We prepared for an oil shock! When the Iran War started, there was an eery calm in the markets, which I didn’t know how to interpret. But early on in the Iran War, an analyst I know pulled me aside and told me not to panic. Oil traders, he said, look at detailed flows of hydrocarbons and make bets based on that data. They know what’s going on. And since the oil shocks of 1970s, he noted, there has been significant diversification of energy sourcing across the world. I didn’t quite realize how prepared we really were, and I didn’t have faith in our institutions to manage crises. But he was right. Part of that diversification occurred in 1975, when Gerald Ford signed legislation creating the SPR. In 1977, Jimmy Carter began filling it up, finding a suitable location in the salt caves of the Gulf Coast. There are parallel stockpiles all over the world, with the largest one by far in China. There’s even a sort of global governance mechanism; the International Energy Agency, which was established in 1974, recommended that nations build a stockpile of at least 60 days of their net import volume, which they then amended to 90 days. The IEA coordinates global responses to oil shortages. In other words, oil markets, unlike most other commodity markets, are intensely and explicitly governed by public institutions. Oil is actually something of a throwback; stockpiling was a core feature of anti-monopoly New Deal statecraft. Since World War I, the U.S. government stockpiled a host of different critical minerals, and important elements like helium. In the 1950s, we regularly built up stores of metals like aluminum, and our supply management system in farming ensured that the government had large warehouses of extra food.
Ironically, it took the government a lot longer to manage oil than most of these other commodities. in 1944, Franklin Delano Roosevelt’s Secretary of the Interior, Harold Ickes, proposed a strategic stockpiling of oil, but it didn’t happen. Truman thought about it, so did Eisenhower. But we had significant domestic capacity, so it seemed sort of silly to worry about oil. It wasn’t until 1970 that the U.S. became a net importer of oil, and then in the early 1970s, we had an oil crisis. The world established the SPR and its sister reserves as a response. After fifty years of diversifying and stockpiling, the world managed the shutdown of Hormuz for 100 days, incurring far less damage than expected. One of the virtues of stockpiling, aside from safety, is that it allows for managing commodity booms and busts. If there’s too much on the market, the government buys up the extra, if there’s not enough, the government releases supply. Governments released oil from their reserves during the 1991 Gulf War, in 2005 after Hurricane Katrina, after the Lybia invasion in 2011, and during the post-Covid moment in 2022. Indeed, stockpiling isn’t rocket science, every competent civilization does it. Just read the Bible, with the story in Genesis of Joseph storing up supplies to prevent famine in Egypt. Of course, the story here is a lot more than just stockpiling. The fracking revolution opened new sources of oil supply, and the U.S. became a major exporter of oil and natural gas. A host of countries, including Japan, built up systems to rely on coal in case of an oil shock. Pakistan and large parts of Africa affixed cheap solar panels to homes, in part buffering energy costs. Within the Gulf itself, Saudi Arabia built a reserve pipeline to move 7 million barrels of oil a day without having to go through the Strait of Hormuz. Then there’s China. Chinese leaders are obsessed with strategic vulnerabilities, and have diversified their imports of virtually everything, as well as stockpiling the way America used to - they even have a strategic pork reserve. Chinese imports dropped dramatically during the war. That country has a set of controls on how to use petrochemicals, as well as the mechanism to substitute coal for oil in certain industrial processes. Diversifying supply and creating stockpiles is a classic anti-monopoly approach to national security. After Covid, the U.S. government began investing in domestic production in strategic sectors, like chips, batteries, and solar energy. It’s not nearly enough to protect ourselves, but we are beginning to build our domestic supply chains in certain areas. It’s important not to overstate the point. China has a monopoly in rare earth magnets and materials, which allows that country to shut down any industry it chooses. Though other countries, including the U.S., have been investing billions to build out an alternative supply chain for more than a year, we are still years away from having anything we can use to replace the Chinese source of supply.
Of course, economists and conservative free market types are hostile to stockpiling and diversification, because they value the efficiency of capital over safety. Neoliberals on the Democratic side hate government management of commodity flows; Bill Clinton sold off our helium reserves, and ended the last elements of supply management in agriculture. Since Ronald Reagan, the Republican Party has sought to get rid of the Strategic Petroleum Reserve, aided by various libertarian think tanks and economists. (It’s amusing that one of the authors who made this all-time terrible call, Nicholas Loris, is now a fellow at the Abundance Institute.)
One of the ideological enforcement mechanisms that exists in our media is to act like what government does is a passive and natural part of the environment, but to promote every corporation action as if it is a product of immense innovation and heroism. In the case of the Iran War, the press acts like the Strategic Petroleum Reserve is just something that America has because reasons, instead of an actual success of our democratic government that we chose to create and sustain. Yet at the same time, when there were shortages during Covid, the press blamed our political leaders, instead of the corporate institutions and economists lobbying to hobble our capacity to diversify. The Iran War has been a catastrophe, and I don’t mean to suggest otherwise. I hope it is over. Maybe it is, maybe it isn’t. But it is important to recognize that Donald Trump’s choices damaged our society far less than they otherwise might have, because of some wise decisions by leaders in the 1970s to build reserves and diversify our supplies. With food, chemicals, medicine, critical minerals, and anything else we can’t do without - well, we might consider learning a thing or two from that. Thanks for reading! Your tips make this newsletter what it is, so please send tips on weird monopolies, stories I’ve missed, or other thoughts. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation, and democracy. Consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy. cheers, Matt Stoller This is a free post of BIG by Matt Stoller. If you liked it, please sign up to support this newsletter so I can do in-depth writing that holds power to account.
© 2026 Matt Stoller
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