The assessment of the available data for May is rather positive. Granted, inflation keeps rising, but the contribution of the "energy" component remains dominant. Confidence enjoys a respite: business confidence in services and consumer confidence are sources of good news.
Business sentiment, which was on an upward trajectory before the shock, stayed resilient but signaled a faster input-price growth and longer delivery times, both directly linked to Middle East turmoil and coming on top of the issue of tariffs. Meanwhile, the outlook of households, which were already low on optimism has further deteriorated.
In May 2026, the average CPI inflation rate for the main emerging economies was broadly stable at 4.7% y/y after 4.8% in April. The shock is still contained compared to 2022 due to limited spillover to agricultural and food prices. Manufacturers’ opinion on the trend in input & output prices has stopped deteriorating but remains higher than in 2022.
Until the agreement extending the ceasefire (second half of June), European oil and gas prices had reacted more strongly to the energy shock caused by the war in the Middle East than they had to the shock that followed Russia’s invasion of Ukraine. This is no longer the case now that the prospects for a resumption of traffic through the strait of Hormuz are becoming more tangible.
The global race for artificial intelligence and the electrification of economies is leading to an increase in demand for metals. A recent study by S&P Global indicates that global electricity consumption is projected to grow by nearly 50% by 2040, fuelling a sustained rise in demand for copper, lithium, nickel, and other critical minerals. According to the International Energy Agency, demand for copper could rise by 30 to 40% by 2040, while demand for lithium could increase four- to sixfold, depending on the pace of adoption of low-carbon technologies.
The memorandum of understanding reached between the United States and Iran certainly provides a degree of relief, but it remains shrouded in too much uncertainty to fundamentally change the situation—at least in the short term. The recent fall in oil prices is good news, but it needs to be maintained over the long term, while the reopening of the Strait of Hormuz faces numerous constraints. A return to normal will take time. This headwind to growth is diminishing, which reinforces our resilience scenario. Inflation is likely to remain elevated for some time yet due to the lagged effects of tensions on oil and other commodity prices
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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.
Since the outbreak of the conflict in the Middle East on 28 February, energy markets have experienced increased volatility, with a marked rise in oil and gas prices. However, our analysis indicates that the impact on advanced economies is likely to be moderate, provided that the blockade of the Strait of Hormuz does not drag on. What mechanisms are at work and what risks have been identified?In this new episode, Lucie Barette and Marianne Mueller analyse the consequences of the current energy shock triggered by the conflict in the Middle East on advanced economies
Latin America is not exposed to the risk of a disruption in hydrocarbon supplies due to the conflict in the Middle East. However, the rise in international energy prices is exerting pressure on the region’s public finances. In Brazil, Mexico and Colombia, fuel subsidies are increasing the risk of fiscal slippage; however, this risk is somewhat mitigated by the projected rise in oil-related fiscal revenues. In Chile and Peru, the lack of subsidies points to a significant inflationary impact that could result in a monetary tightening. This would increase the interest burden on public debt, but the moderate fiscal deficits in these countries should enable them to absorb the shock
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 Eurozone is experiencing rapid population ageing, which, at first glance, does not inspire much optimism regarding its growth prospects. However, the decline in its working-age population can be countered by effective migration policies (as seen in Italy and Spain), as well as by an increase in labour force participation rates. Furthermore, much will depend on a recovery in productivity, which experienced a sudden stop following the Covid-19 pandemic.
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 assessment of the available data for April is more negative than in March. Inflation rose by 1.1 percentage points in two months, an increase that is however still solely driven by the "energy" component. Excluding energy as well as excluding “energy and food," inflation recorded a new slight decline in April. However inflationary pressures are mounting, through rising input prices and — new development in April — the beginning of an increase in output prices according to PMIs surveys.
CPI inflation recorded its largest monthly increase since 2022 in March, before reaching 3.8% y/y in April (+1.4pp in two months and a highest since 2023) – almost entirely on the back of gasoline prices, with the non-energy index edging up only moderately.
In April 2026, the inflationary impact of the oil price shock is spreading as the average CPI inflation rate for the main emerging economies reached 4.8% year-on-year, compared with 3.9% in February. The shock is still contained compared to 2022 due to limited spillover to agricultural and food prices. However, manufacturers’ opinion on the trend in input & output prices have deteriorated significantly. The contagion of oil and gas prices to fertiliser and oil-derived input prices is being felt more acutely.
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.
Emerging Asian countries are particularly vulnerable to the energy shock caused by the conflict in the Middle East. Beyond supply issues, rising prices pose a significant risk to these countries, where domestic demand is a major driver of economic growth. To limit the impact, some Asian countries (notably India, Indonesia, Malaysia and Thailand) have opted to partially subsidise energy and fertilisers. The additional cost to their public finances is expected to remain manageable provided that the average crude oil price does not exceed USD 100 per barrel over the year. However, this subsidy policy poses risks to their public finances, particularly if external financing conditions tighten. Indonesia is the country most exposed to a rise in US long-term interest rates.
The 15th Five-Year Plan, which outlines the roadmap for the Chinese economy from 2026 to 2030, does not signify a major shift in direction but rather continues on the path of the previous plan. It confirms, or rather reinforces, China’s development strategy based on asserting its export, industrial and technological power. Rather than focusing on rebalancing the growth model and boosting domestic consumption, Beijing is prioritising industry and innovation, seeking to increase its dominance in critical sectors and guarantee its ‘national security’
The energy shock is beginning to feed through into French inflation. In March and April, inflation was limited to refining activities and fuel prices. It is expected to affect more sectors in the second quarter, according to the European Commission’s survey on three-month selling price expectations. In France, the pass-through is expected to mainly affect intermediate goods in Q2. However, inflationary pressures on consumer goods and services or construction are expected to remain quite moderate. These factors are consistent with our scenario of a limited acceleration in French inflation and a moderate impact of the energy shock on growth.
Welcome to this new episode of MacroWaves, the podcast from BNP Paribas’s Economic Research department. In this episode, we’re joined by Pascal Devaux to discuss a crucial issue for Europe: its energy dependence. Reliance on imports highlights the European Union’s lack of energy sovereignty. This applies to both the primary energy mix and the infrastructure needed for its low-carbon transition.The EU is making progress, however, albeit very slowly.To what extent is the European Union dependent? What approaches could enable it to reverse the trend, or at least make progress? That is what we will explore in this episode.
The trade openness of EU countries represents both a strength and a weakness, making active initiatives necessary to enhance economic security. According to the World Bank, in 2024 the EU’s trade openness stood at 92%, compared with 25% for the United States and 37% for China. For Italy, the figure was 63%, among the highest among Member States, with particularly strong exposure to extra-EU demand. The evolution of the international geopolitical and economic context, together with the country’s dependence on the import of energy materials, suggests that careful consideration should be given to the potential vulnerability of Italian imports to possible total or partial disruptions in the external supply of strategically significant products.
