(This item originally appeared at Forbes.com on March 8, 2026.)
Last month, I warned that gasoline prices could rise to perhaps $10 a gallon. I made comparisons to the Oil Crisis of 1973, especially the apparent decline in the dollar’s value (as expressed by the number of dollars it took to buy an ounce of gold) that preceded the Oil Crisis that erupted in October of that year. The “price of gold,” or in other words the exchange rate between the floating fiat dollar and what served as its benchmark of value for nearly two centuries previous, had risen from $35/oz. in 1970 to around $100/oz. in mid-1973. It took three times more dollars to buy an ounce of gold; and pretty soon, it took three times more dollars to buy a gallon of gas as well.
But when I was outlining the eerie similarities between 1973 and today (including a Federal Reserve that did not seem to be doing anything inflationary), I didn’t expect that we would actually have another Arab Oil Embargo.
In response to the outbreak of the Yom Kippur War in October 1973, King Faisal of Saudi Arabia said that he would not ship oil to Israel’s allies in the conflict, including the United States. Oil prices soared in response.
The embargo was lifted in March of 1974. But, oil prices never went back down. They were about $3.50/barrel before the Oil Crisis, and $11.50/barrel afterwards – almost exactly the 3x that you could have predicted beforehand by the number of dollars it took to buy an ounce of gold.
Then they went up further, to nearly $40/barrel in 1980. Of course Washington blamed the Iranian Revolution of 1979, just as it had blamed the Arab Oil Embaro six years earlier. Nothing was their fault, just those darn Muslims.
But you could have predicted this as well, even knowing nothing about Iran. It took $600 dollars to buy an ounce of gold, around early 1980. Guess what happened next.
Today, conflict with Iran has blocked the passage of oil and LNG tankers through the Straight of Hormuz. Washington naturally blames Iran. But the effect is to block up to 20 million barrels a day of oil that passes through the straight, out of about 107 million barrels of world production. How long this will last, or what will become of it, is still an open question.
But one thing that I think will happen, and which is not expected yet, is that oil prices will go up to wherever they go, but they will not come back down much. In 2018, oil was $60 and it took about $1250 to buy an ounce of gold. Recently, oil was around $60 and it took $5000 to buy an ounce of gold. Or, 4x higher. You too can be an oil expert by multiplying $60 by 4x. But, then you get a number that is really quite surprising.
And, if you take the 1973 experience as an example, not only would oil prices go up, but they would not go down again. After the embargo ended in March 1974, even years after, oil prices didn’t fall back to $3.50. In early 1978, before the Iranian Revolution of 1979, they were around $15. $15 for a barrel of oil sounds cheap to us today, but it was about 4x what people were used to before. If you think $60 X 4 is a big number, that’s about what it felt like to Americans in those days (especially if you had one of those big Detroit sedans that got 9 miles per gallon).
The root cause of all this is the chronic decline in the value of our currency. The dollar today is a floating fiat currency. Its value goes up and down – over time, mostly down. Often, this does not come from “printing money” like so many economists claim. There wasn’t much money creation in the 1970s, and not much today either. But, the value just falls, for some reason — maybe a good reason such as the abject failure of major governments around the world to deal with their chronic big deficits and resulting big debt loads.
This is the Sovereign Debt Crisis that bigfoot macro investor Ray Dalio has been writing books about.
We didn’t have this problem in the past, because we didn’t have a currency that loses value. The value of the dollar was fixed to gold. An “oil crisis” – or heck, a World War like World War I – might lead to soaring prices for commodities including oil. But, they would fall back again later, as supply gradually caught up with demand.
We are going to have a flood of Don’t-Blame-Me excuse-making from the elite types, just as we had in the 1970s. But remember that the real cause of persistent price rises is a decline in the value of our money, not transient geopolitical events. For nearly two centuries, the dollar’s value was fixed to gold, and the US middle class became the wealthiest society in world history. We already know what works. So, when the time comes, let’s do it again.
