Recent events in Iraq serve as a reminder of the interconnectedness of economies, particularly as it relates to the supply and demand for commodities. That interconnectedness can cause fragility, as it has historically when oil prices spike due to supply disruptions. The best example occurred in 1973 during the OPEC oil embargo. That embargo catalyzed a string of events including sharply higher oil prices, inflation, and a 16-month recession.

But while movements in oil prices matter to the US economy, they matter a lot less now than they did in the early 1970s. The chart below shows a ~65% decline in US Energy Intensity, measured as energy consumption per unit of GDP. Given both greater energy efficiency in the US as well as our economy’s shift toward services from manufacturing, we’re a lot less vulnerable to spikes than we ever were before.