Oil Prices Barely Moved After Strait of Hormuz Closure, and That's the Warning Sign

Oil markets faced a real test recently. The Strait of Hormuz came under threat of closure amid tensions from the Iran conflict. Textbook economics says a supply shock like that should send prices soaring.

It didn't happen. According to analysis published by OilPrice.com, West Texas Intermediate crude saw only a mini spike in response to the disruption fears, and even that modest bump looks smaller once you consider that past price spikes would appear even higher if adjusted for inflation. The market shrugged.

A weak price reaction to a real supply disruption threat usually means demand was already soft going in. OilPrice.com frames this as part of a longer pattern stretching back to 1820: periods of low energy affordability have repeatedly preceded financial crashes, wars, and economic collapses.

High-demand periods and their contrast

The analysis draws a contrast between two kinds of economic eras. In high-demand periods, more people every year can afford cars, fuel, and homes. Young people are eager to buy homes because they find them affordable, and they see their incomes as relatively higher than their parents' were at the same age. Countries around the world find it easy to industrialize, allowing citizens better lifestyles. OilPrice.com points to the 1950s, 1960s, and 1970s as periods of high growth in demand for oil products.

Low-demand periods look like the mirror image. Too many young people, even those with advanced degrees, cannot find jobs that pay well. They can't afford to go on vacation or buy a new car. Record numbers live with their parents after finishing school, spending their spare time playing video games rather than socializing.

The numbers behind the claim

The number of cars sold worldwide hit a peak in 2017, according to the analysis, and hasn't recovered since. Fewer people buying cars, especially as more of the cars sold are electric, translates directly into weaker oil demand.

Housing tells a similar story. According to the US Census Bureau, new home sales in the US hit a record of 1,283,000 in 2005. In 2025, that number was only 678,000 — about 53% of the peak amount. Since building a home also takes oil, OilPrice.com treats the drop in new home construction as a sign that people, often young people, are not as well off financially as they were years ago and cannot afford to buy a new, or even a used, home anymore.

On income, OilPrice.com cites a study based on income tax data showing that between 1948 and 1970, US incomes tended to rise faster than inflation. Between 1968 and 1983, the incomes of both the top 10% and the lower 90% rose about as fast as inflation. But between 1983 and 2012, the top 10% received far greater increases than the bottom 90%, according to a chart in the analysis attributed to economist Emmanuel Saez, based on an analysis of IRS data.

Why this matters beyond the gas pump

A mainstream economist would raise a fair objection: correlation between weak oil-demand growth and financial stress doesn't prove oil demand causes the crashes. Broader economic weakness, from trade shifts to demographic change to monetary policy, could suppress both car and home buying and oil demand simultaneously, without oil playing any special causal role. Energy analysts who focus on transition dynamics would also point out that some of the drop in new car and gasoline demand is a substitution effect, not necessarily poverty. Electric vehicles replacing gas-powered cars, more remote work cutting commuting, and increased efficiency in newer vehicles all reduce oil demand for reasons that have nothing to do with people getting poorer.

The housing and income data are harder to dismiss, though. A drop to roughly half of the 2005 peak in new home sales isn't explained by fuel efficiency. Neither is a multi-decade widening in income gains that concentrated heavily at the top after 1983, according to the tax-data analysis cited.

OilPrice.com's own conclusion, drawn from energy consumption data running from 1820 to the present, is that the world economy has historically behaved well during periods of high energy consumption growth, and poorly — with financial crashes, wars, and government collapses — during periods of low energy consumption growth. The analysis warns that today's oil and debt problems suggest the world may be entering another such period of low, or even contracting, energy consumption growth, with outcomes that could be at least as undesirable as those seen in past low-growth periods.