Oil, unemployment, and the Dow, 1970–2026

Three indicators on three axes. Grey shaded bands are NBER-dated US recessions. The 1973 oil shock is the cleanest case of all three signals firing together: oil up sharply, unemployment up, Dow down hard.
Grey bands NBER recessions 1973 OPEC embargo 1979 Iranian Revolution 1987 Black Monday 1990 Gulf War 2008 GFC 2020 COVID 2026 Iran war
Reading the chart. All three series are useful but tell different parts of the story. Oil price spikes lead recessions in the 1970s, 1990, 2008, and arguably now. Unemployment lags: it rises after the recession has begun and stays elevated past the trough. The Dow leads in the other direction: it usually starts falling before the official recession date and starts recovering before the trough.

Axes. Left: US unemployment rate (%, BLS U-3). Right (inner): WTI/Saudi posted crude price (USD/bbl, nominal). Right (outer): Dow Jones Industrial Average year-end close (log scale because the absolute level grew ~50x from 1970).

Sources. Unemployment from BLS. Oil from BP Statistical Review (1970–85) and EIA WTI (1986+). Dow from S&P Dow Jones year-end closes. NBER business cycle dating committee recession bands. April 2026 figures are partial-year approximations.

Drawdown scenarios for 2026

What each historical bear-market template implies if applied to current index levels. The Dow stood at 50,121 on 11 February 2026 (all-time high) and 49,230 on 24 April 2026. The All Ordinaries stood at ~8,745.
US Dow Jones Industrial Average
Template Drop From peak From current
2020 COVID-37%31,57631,015
2000–02 dot-com-38%31,07530,523
1973–74 nominal-45%27,56727,077
2007–09 GFC-54%23,15622,646
1973–74 real terms-55%22,55422,154
All Ordinaries
Template Drop From current
2020 COVID-36%5,597
1973–74 nominal-59%3,585
2007–09 GFC-54%4,023
1987 Black Monday (AU)-50%4,373
Reading the table. A 1973-style nominal repeat puts the Dow in the 27,000s and the All Ords in the 3,500s. A 2008 repeat puts them in the 22,000s and 4,000s respectively. Australian markets historically draw down harder than US markets in shared crises (1973–74 was -59% for the AU equivalent vs -45% for the Dow; 1987 was -50% for the All Ords vs -36% for the Dow), partly because Australian equity is concentrated in cyclical sectors (resources, banks) that suffer disproportionately in global recessions.

Real-terms caveat. The 1973–74 row marked "real terms" applies the inflation-adjusted loss to a nominal level. If 2026 inflation runs at 8% or higher, the nominal floor would not need to fall to GFC levels for the portfolio damage to match the 1970s; persistent inflation would erode any nominal recovery for years. The Dow did not regain its 1973 nominal peak until 1982, and in real terms not until 1992.

Australia: oil, unemployment, RBA rate, and All Ords, 1970–2026

Same structure as the US chart but with Australian indicators. Grey shaded bands are Australian recessions (ABS-recognised contractions). Note that Australia avoided recession 1991–2020, the longest run of any developed economy. The 1990–91 "recession we had to have" was harsher than anything the US experienced in the same window.
Grey bands AU recessions 1974 Oil shock Dec 1983 AUD float 1989–90 RBA rate peak 17.5% 1990–91 Keating recession 2008 GFC (Australia avoided technical recession) 2020 COVID 2026 Iran war
Reading the chart. The Australian story differs from the US in several ways. Inflation in 1974 was even worse here than in the US (peak 17.6% in 1975). The 1990–91 recession was deeper and longer than the 1990 US recession; unemployment peaked at 10.9% in 1992. Australia famously dodged recession in 2008–09 thanks to a China-driven mining boom and aggressive RBA rate cuts. The post-2010 cash rate path collapsed to 0.1% during COVID and has now returned to 4.10%. Oil in AUD has historically tracked USD oil but with significant divergence during AUD weakness phases.

Axes. Left: Australian unemployment rate (%, ABS) and RBA cash rate / short-term policy rate (%). Right (inner): WTI/Saudi posted crude price converted to AUD using annual average AUD/USD. Right (outer): All Ordinaries year-end close (log scale; Sydney All Ords pre-1980, current All Ords 1980+, methodologies differ).

Sources. Unemployment from ABS Labour Force survey. Cash rate from RBA (formal target since Jan 1990; pre-1990 series uses the official short-term money-market rate as proxy and should be interpreted as directional rather than precisely comparable). Oil converted from USD using RBA AUD/USD annual averages. All Ords from ASX/S&P Dow Jones year-end closes. April 2026 figures are partial-year.

⚠ SPECULATIVE: Australia 2015–2030 with central projection for a 1973-grade recession scenario

This chart contains speculation, not forecast. The 2026 Q3 onwards values are central-scenario projections derived from a structured channel-analysis exercise: what would happen if the Iran war oil shock translates into a 1973-grade global recession reaching Australia. Solid lines are observed data; dashed lines are projection. The red tinted band indicates the projected Australian recession window (Q3 2026 to Q1 2028).

This is one scenario, not the only scenario. An optimistic case (oil shock resolves, no global recession) keeps the lines flat or slowly normalising; a pessimistic case (oil shock combined with banking-system stress) is materially worse than what is plotted. The point of the chart is to make the channel analysis visually concrete, not to predict.
Red band Projected AU recession Q3 2026 – Q1 2028 Grey band COVID recession (observed) Q3 2026 Recession begins 2027 RBA cuts to ~2.0% Late 2027 All Ords trough (~5,000) 2028 Unemployment peak (~7.5%) 2029–30 Recovery
Central projection assumptions.

Unemployment. Rises from 4.3% (Mar 2026) to a peak of approximately 7.5% in 2028, then recovers slowly to ~5.5% by 2030. The peak lags the recession by ~12 months (typical pattern). Magnitude is between 1991 (10.9%) and 2008 (5.9%); held below 1991 by JobKeeper-style targeted support, fiscal stimulus, and the structural tightness of the labour market pre-recession.

RBA cash rate. Cuts begin in late 2026 as recession evidence accumulates. Falls from 4.10% to ~2.0% through 2027. Held at 1.5–2.0% through the trough. Begins normalising in 2029, reaches ~2.5% by 2030. The RBA does not return to the COVID-era 0.10% because inflation pressures from the AUD slide prevent it.

Oil in AUD/bbl. Falls from ~$146 currently as global recession destroys oil demand, but AUD weakness partially offsets the USD price decline. Settles in the $100–130 AUD range through the recession; recovers to ~$120 by 2030 as both oil demand and the AUD normalise.

All Ordinaries. Falls from 8,745 to a trough of approximately 5,000 (a ~43% drawdown), then recovers slowly to ~6,500 by 2030. The drawdown is between the 2008 GFC magnitude (-54%) and the 2020 COVID recovery shape. Real-terms losses would be deeper if inflation persists, as in the 1973–1992 nominal-vs-real divergence.

What would falsify this projection. A swift Hormuz reopening with oil returning to $70 USD by Q3 2026 removes the trigger. RBA holding above 4% through 2027 indicates the inflation-fighting path was chosen over the housing-supporting path. Iron ore staying above $100/tonne indicates the China demand channel held. Any one of these would push the trajectory much closer to flat than to the projected curves.

What would make it worse. Banking-system stress emerging from mortgage delinquency. AUD breaking below 0.55 USD. Iron ore below $60/tonne. China entering its own deep recession. The 1973-grade scenario assumes none of these tail risks materialise; if they do, the unemployment peak goes north of 9% and the All Ords trough goes below 4,000.