Oil once again sets the pace of the global economy
The jump in the price of Brent above the threshold of 100 dollars per barrel has once again brought back to the centre of the global economic debate a question that in recent months had seemed somewhat pushed aside: how sensitive global growth still is to an energy shock. Markets, central banks and governments are now not only watching the movement of stock indices or exchange rates, but above all are monitoring what is happening along the Persian Gulf – Strait of Hormuz – global tanker traffic route. When that narrow sea passage is disrupted, the consequences do not stop with oil companies or exporting countries. A higher oil price very quickly spills over into the price of transport, fuel, logistics, part of industrial production and, indirectly, food. That is precisely why energy is no longer just a consequence of geopolitics, but its fastest and economically most expensive translator.
The latest wave of price growth came at a moment when some major economies were already slowing, while inflation had not yet been fully brought back under control. On March 12, the International Energy Agency announced that the war in the Middle East was creating the largest supply disruption in the history of the global oil market, estimating that flows of crude oil and derivatives through the Strait of Hormuz had fallen from approximately 20 million barrels per day to merely symbolic quantities. At the same time, the agency warns that Gulf countries have reduced production by at least 10 million barrels per day because of traffic stoppages and limited alternative routes. In such circumstances, the discussion is no longer only about price volatility, but about the question of how long the global economy can absorb a new energy удар without more serious consequences for growth, inflation and consumption.
Why the Strait of Hormuz remains one of the world’s most important points
The Strait of Hormuz is often described as the world’s most important chokepoint for energy transport, and the reason is simple: a large share of global trade in oil and liquefied natural gas passes through it. The U.S. Energy Information Administration states that in 2024 and in the first quarter of 2025, volumes passed through that strait accounting for more than a quarter of total global seaborne oil trade and about a fifth of global consumption of oil and petroleum products. In addition, about a fifth of global trade in liquefied natural gas also passes along that route, primarily from Qatar. In other words, any more serious disruption on that route is simultaneously a blow to the oil market, the gas market, shipping services and the industry that depends on them.
Asian economies are particularly exposed. According to EIA estimates, as much as 84 percent of crude oil and condensate and 83 percent of LNG passing through Hormuz ends up in Asian markets, above all in China, India, Japan and South Korea. This means that a more prolonged disruption would hit precisely the largest energy importers the hardest, but the secondary effects would very quickly spill over to Europe and the rest of the world as well. Europe is sensitive because it still depends heavily on energy imports and because the price of energy strongly affects industry, transport and the overall inflation picture. Even when physical shortages are not immediate, the mere threat of disruption pushes up futures prices, transport insurance, shipowners’ costs and the risk premium that the market builds into every delivery.
The psychological threshold of 100 dollars is not just a symbol
Oil above 100 dollars per barrel matters not only as a round number that attracts headlines. That level acts as a signal that the market no longer believes in a rapid calming of the crisis and is beginning to reckon with a longer period of more expensive energy. According to media reports from March 16, Brent was moving above 104 dollars, and some analysts warn that in the event of a prolonged stoppage or a new strike on infrastructure, the price could remain elevated even after the first wave of panic. The problem lies not only in the price of crude oil itself, but also in the way it is transmitted through the entire value chain. When the barrel becomes more expensive, it is not only fuel at filling stations that becomes more expensive. Rising prices are felt by transport operators, air traffic, agriculture, the chemical industry, packaging manufacturers and all sectors for which energy is an important input cost.
Such shocks also have a strong psychological effect. Households notice rising fuel prices faster than most other macroeconomic changes, so rising energy prices often change citizens’ expectations about future inflation as well. And expectations are precisely crucial for the behaviour of consumers, trade unions and employers. If companies calculate in advance that energy will remain expensive, they will raise the prices of goods and services more easily. If workers expect a new wave of price increases, they will demand wage growth more strongly. In that way, the initial external shock can turn into broader inflationary pressure, that is, into what central banks fear most: spillover from raw materials into core inflation.
How expensive oil feeds inflation
The link between the price of oil and inflation is not mechanical, but it remains very strong. In an analysis of the effects of oil shocks, the International Monetary Fund warns that central banks cannot influence the global price of oil, but they can try to limit its spillover into wages and other prices. If a jump in energy prices strongly enough encourages wage growth and broader increases in the prices of goods and services, the risk of a so-called second round of inflation rises, that is, a situation in which the initial energy blow is no longer a one-off episode, but becomes a general price problem. In the European context this is especially important because many economies have only recently started to emerge from the post-pandemic and post-Ukrainian inflation cycle.
In more recent work on the transmission of energy shocks to inflation, the European Central Bank shows how important the indirect effects are. The analysis of gas shocks, which is particularly relevant for Europe, shows that rising energy prices do not affect only household bills but also the entire production chain, with indirect effects through production costs accounting for the majority of the total pressure on consumer prices. Although in this case it is about gas, the logic is similar with oil as well: energy is an input cost for a series of activities, so its rise in price does not remain confined to the energy sector. That is why every serious oil crisis very quickly becomes a story about the broader cost of living.
From tankers to the store shelf
The link between more expensive oil and more expensive food is often underestimated, although it is very direct. Oil affects the costs of soil cultivation, transport, cooling, storage and food distribution. In addition, in its analyses the World Bank reminds that rising energy prices significantly affect fertiliser prices as well, especially when both oil and gas are rising, because energy sources are a key input in their production. The consequence is double pressure on agriculture: both production and transport become more expensive. This is especially difficult for lower-income countries and those with a high share of food and energy in the consumer basket, but developed markets also feel the consequences through higher retail prices and weaker real disposable household income.
That is precisely why oil today is no longer only a topic for stock exchanges and energy ministers. It is an everyday topic for citizens, although the consequences are not always visible on the same day. Between the increase in the price of a barrel and the change in prices on store shelves there is a time lag, but the experience of previous crises shows that it can be short when markets are tense and when logistics chains are already operating under pressure. In such circumstances, the most vulnerable are sectors that operate with low margins and cannot absorb higher input costs for long without passing part of the burden on to end customers.
Can strategic reserves calm the market
In order to soften the shock, on March 11 the International Energy Agency agreed the largest release of oil from emergency stocks in its history, a total of 400 million barrels. This is a strong political and market signal that the largest consumer economies do not intend to passively observe the supply disruption. However, the question is how much such a measure can help in the long term if the main cause of the crisis remains unresolved. The IEA itself warns that flows through Hormuz have fallen almost to zero and that limited alternative routes cannot fully replace that passage. In other words, strategic reserves can buy time and reduce panic, but they cannot permanently make up for a prolonged closure of a key transport artery.
There are certain bypass capacities, but they are limited. The EIA states that Saudi Arabia and the United Arab Emirates have infrastructure capable of bypassing Hormuz, but the estimated spare capacity of those routes amounts to about 2.6 million barrels per day, which is significantly less than the quantities that normally move through the strait. This means that even with maximum use of alternative routes, a large gap remains between the market’s normal needs and supply possibilities. The market recognises this very quickly, so prices remain elevated even when there is a short-term intervention from stocks.
What this means for central banks and economic growth
The biggest problem for monetary authorities is that an energy shock is simultaneously inflationary and restrictive for growth. A higher oil price raises costs and encourages inflation, but at the same time reduces the purchasing power of households and puts pressure on investment, because part of the money that would go into consumption or development goes to energy. This is a classic recipe for an economic slowdown and, in a more severe scenario, for stagflation, that is, a combination of weak growth and stubborn inflation. In such conditions, central banks have less room to cut interest rates, even if they see signs of economic slowing, because they are still constrained by the risk that monetary easing could further entrench inflation expectations.
That is precisely why markets read oil not only as a commodity, but also as a signal for future decisions by the Federal Reserve, the European Central Bank and other monetary authorities. The longer oil stays above 100 dollars and the longer the situation in Hormuz remains uncertain, the smaller the chances that inflation will continue to fall quickly and smoothly. In that case, the probability grows that interest rates will stay at restrictive levels for longer, which further burdens lending, the real estate market, business investment and the public finances of states with already high borrowing costs.
Geopolitics and economics can no longer be separated
Current developments show that the old division according to which geopolitics is separate from the “real” economy no longer applies. Just a few days of serious disruption in one narrow sea passage are enough to change expectations on stock exchanges, recalculate inflation forecasts, postpone plans for interest-rate cuts and open questions about the price of fuel, food and industrial production across several continents. In such a framework, energy becomes the central economic story because it transmits political instability directly into the everyday costs of citizens and company balance sheets.
Whether this shock will turn into a more lasting inflationary wave depends above all on the duration of the disruption and the speed of restoring safe traffic through the Strait of Hormuz. If de-escalation occurs, part of the price rise could gradually deflate, and strategic stocks and alternative routes could help the market return to balance. But if tensions persist, the world could enter a new period of more expensive energy, tougher monetary conditions and weaker growth. That is precisely why oil these days is not only a commodity whose price is monitored on terminals, but the main thermometer of global economic nervousness.
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