The United States and Iran have reached an agreement to extend the ceasefire by 60 days and gradually reopen the Strait of Hormuz to traffic. The oil markets reacted swiftly: Brent prices have fallen by around 7% since the announcement and by 32% from a peak reached on 29 April. However, they remain 27% above the average for January. Despite this optimism, a comeback to normality for the oil market is likely to take several weeks.
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Advanced economies proved resilient in 2025 despite a tariff shock that disrupted global trade. By early 2026, they were on track for faster growth and lower inflation. A fresh shock linked to the war in the Middle East, however, is reigniting inflation while slowing growth. This mix primarily reflects the impact of a likely decline in purchasing power on consumer spending. However, many of the factors that underpinned 2025 growth — AI development, higher defense spending (especially in Europe), and continued trade growth — are set to persist in 2026. They would be reinforced by an acceleration of electrification, against a backdrop of rising oil prices and an AI-driven rise in electricity demand.
Inflation continues to rise globally, in both advanced and emerging economies, and remains largely driven by energy prices.
The blockade of the Strait of Hormuz over the past two and a half months has significantly reduced the amount of oil available globally. The use of regional bypass, and the release of commercial stocks and strategic reserves are only partial and temporary solutions. Without the restoration of oil flows through the strait, the growing shortfall in petroleum products will accelerate the rise in oil prices and destruction in global oil demand.
Will the same causes produce the same effects? In other words, will the war in Iran and the resulting surge in oil and gas prices lead to an inflationary shock comparable to that seen in 2022? Will their negative effects on growth be the same as those for the war in Ukraine and the subsequent energy shock? Although there are similarities, there are many uncertainties.
The growing loss of barrels available on the market due to the closure of the Strait of Hormuz, repeated attacks on production capacity in the Gulf, and restrictions on traffic through the Strait increase the risk of a physical oil shortage in the short term. This has led to a sharp reaction in the prices of physical barrels (dated Brent). In recent weeks, better pricing of this risk of shortage has caused the prices of futures (Brent) to converge with that of the physical barrel (dated Brent). Furthermore, the sharp rise in oil exports from the United States and, to a lesser extent, the decline in Chinese imports have eased tensions in the physical market and pushed prices lower.
Unsurprisingly, the Bank of Japan (BoJ), the U.S. Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE) opted to keep their policy rates unchanged at their meetings in April. However, beneath this shared decision lie subtle differences that enable us to categorize each central bank based on how ready they are for a rate hike in the near future. The ECB ranks first, followed closely by the BoJ and the BoE, with the Fed remaining apart. Although the current energy shock is a global phenomenon and of a stagflationary nature (leading to lower growth and higher inflation), the dilemma varies for each central bank
In this new issue: General dynamics of inflation: A clear rebound, driven by energy prices, now spreading across all countries. Inflation and survey data: Price pressure indicators are surging, signaling an early warning for further sharp increases ahead. Inflation expectations (households, forecasters, markets): For now, short-term inflation expectations – whether from households (especially in the US), forecasters, or markets – are rising noticeably. Longer-term expectations remain stable. Inflation-wage dynamics: A wage-price spiral is unlikely at this stage, and the risk remains contained. Under the impact of the war in the Middle East, inflation is returning to the forefront in advanced economies. Our barometer will be regularly updated to track its repercussions.
Equity indices, Currencies & commodities, and Bond markets.
