Oil Shocks, Stagflation, and the BROKSTOCK Investor Playbook

With oil prices holding stubbornly above $100 a barrel due to the escalating war in Iran, market participants are grappling with a familiar and unsettling question

“What happens now?”

The headlines are filled with talk of inflation and the dreaded return of a 1970s-style stagflation. History doesn’t repeat itself, but highlights similarities. By examining the great oil shocks of the past, we can potentially construct a factual, data-driven framework for understanding the current crisis and identifying which sectors have historically weathered and even thrived in such turbulent times.

Stagflation vs. Inflation

Before looking back, it’s crucial to define the terms that dominate the current economic debate.

●     Inflation is the general rise in prices across an economy. It can occur during periods of strong economic growth when demand outstrips supply. Central banks, like the South African Reserve Bank (SARB), can typically manage this by raising interest rates to cool down the economy.

●     Stagflation is a far more dangerous economic condition characterised by the simultaneous occurrence of three factors, high inflation, stagnant or recession, and high unemployment. This is the worst case scenario because raising interest rates to fight inflation worsen unemployment and build to a potential recession, while the cutting of interest rates used to fight a recession worsen inflation. Leading to central banks being trapped.

The 1970s oil crises are examples of a supply shock triggering a prolonged period of stagflation in the reserve currency nations and globally

The 1979 oil shock, a supply crisis

The oil crisis of the 1970s was a supply-side shock, triggered by the Iranian Revolution. As the Shah’s government collapsed, chaos in Iran’s oil fields caused its output to plummet by 4.8 million barrels per day, a 7% of global production at the time.

The crisis unfolded over approximately 12-18 months. From April 1979 to April 1980, the price of crude oil more than doubled, rising from ~$13 to a peak of ~$38 per barrel

The shock plunged the developed world into a severe period of stagflation. In the U.S., inflation soared to nearly 15%, unemployment hit post-WWII highs, and the economy entered a painful recession. It took central banks to raise interest rates as high as 19% in 1981 to finally break off inflation, at the cost of the most severe recession.

The BROKSTOCK Investor's Playbook Pattern of Market Behavior

By analysing market performance of major oil crises, a consistent pattern emerges. Certain sectors do not just survive periods of expensive oil, they often demonstrate distinct behaviors based on the underlying economic forces at play. Understanding why these sectors react is just as important as observing that they do.

●     Energy: The direct beneficiary

The most direct beneficiaries in any oil crisis are the companies that produce the oil itself. The logic is straightforward; when the price of crude rises while production costs remain relatively stable, the profit margin on every barrel sold expands dramatically. This makes the energy sector a direct reflection of the commodity's price, with its profitability intrinsically linked to the global price of oil.

●     Oilfield Services: The picks and shovels of the Oil Boom

An equally powerful beneficiary of high oil prices is the oilfield services industry. These companies do not produce oil themselves; instead, they provide the essential technology, equipment, and expertise that producers need to drill more wells. When high prices incentivise aggressive exploration and production, demand for these services surges.

●     Defense: The geopolitical premium

Major oil crises are almost always triggered by, or accompanied by, significant geopolitical conflict. This historical pattern means that defense companies have been consistent beneficiaries of the instability that drives oil prices higher. When geopolitical tensions escalate, governments tend to increase military spending to boost national security. This increased expenditure flows directly to defense contractors, creating a clear and historically observable link between global conflict and the financial performance of the defense sector.

●     Gold: The fear hedge

Gold has been the classic refuge in times of crisis for thousands of years. Its value is not tied to the earnings of a company but to its status as a tangible, finite asset outside the traditional financial system. During periods of high inflation and economic uncertainty, investors often turn to gold as a store of value and a hedge against currency debasement.

●     Consumer Staples: The quiet defensive play

While some sectors thrive on volatility, consumer staples offer a quieter but important form of protection. The logic is simple: regardless of the price of oil or the state of the economy, people still need to buy food, beverages, and basic household necessities. This inelastic demand means that the companies producing these goods tend to have stable, predictable revenues even when consumers cut back on discretionary spending. This makes the sector a defensive anchor in many portfolios during economic downturns.

What Sustained +$100 Oil Means for 2026

The current crisis, triggered by the war in Iran and the disruption of the Strait of Hormuz, is a classic supply-side shock resembling the 1970s. With the International Energy Agency (IEA) calling it the “largest supply disruption in the history of the global oil market,” the risk of a potential stagflation is now on the table.

The historical data provides a framework for analysis. In a sustained high-oil-price environment driven by geopolitical conflict, investors have historically sought exposure to the direct beneficiaries and the primary hedge against geopolitical risk. Gold serves as a hedge against the resulting economic uncertainty, while consumer staples offer a defensive posture against a slowing economy.

Ultimately, navigating this crisis is not about predicting the outcome of the war, but about understanding the historical patterns of market behavior during such events. The playbook has been written over 50 years of crises; the key is to read it.

Disclaimer:

*Any opinions, views, analysis, or other information provided in this article is provided by BROKSTOCK SA trading as BROKSTOCK as general market commentary and should not be viewed as advice according to the FAIS Act of 2002. BROKSTOCK SA does not warrant the correctness, accuracy, timeliness, reliability, or completeness of any information provided by third parties. You must rely upon your judgement in all aspects of your investment decisions, and all decisions are made at your own risk. BROKSTOCK SA and any of its employees shall not be responsible for and will not accept any liability for any direct or indirect loss, including, without limitation, any loss of profit which may arise directly or indirectly from the use of the market commentary. The content contained within the article is subject to change at any time without notice. BROKSTOCK SA is an authorised financial services provider - FSP No. 51404. T&Cs and Disclaimers are applicable: https://brokstock.co.za/