Oil Prices Hit 80% Annual Gain as Middle East Conflict Sustains Energy Shock
Oil prices have surged nearly 80% since the start of 2026 due to the Iran-Israel conflict, with economists warning that prolonged energy scarcity could persist through mid-2026 and force global GDP growth forecasts lower across major economies.
Historic Price Rally
For much of the period since the TBAC last met in early February, financial markets have been highly influenced by oil prices, which are up nearly 60% since the start off the Iran conflict, and nearly 80% since the start of 2026. Since the war broke out February 28, Americans have spent $44.1 billion of extra money on gas and diesel, illustrating the direct consumer impact of elevated energy costs.
Global Growth Forecast Cuts
S&P Global Energy's base case is predicated on the Strait of Hormuz remaining effectively closed through May, with flows expected to recover from June, and Dated Brent crude is forecast to end this year well above the US$72/b projection in our April forecast round, with the elevation of crude prices now also expected to persist into next year. The result is annual average prices of Dated Brent in 2026 and 2027, respectively, around 100% and 60% higher than we had assumed in our pre-conflict forecast back in February.
Inflation and Monetary Policy Implications
The increase in inflation expectations since the start of the war has now forced a significant hawkish repricing of central bank policy, most notably in Europe, with 10-year bond yields in many G10 countries at or above the highs of the past few years, and 1-year inflation swaps having jumped by an average of 100bps in Europe and 75bps in the US. With investors seeing a significant probability of a prolonged disruption of the strait, they are now expecting relatively high inflation, with the five-year breakeven rate increasing from 2.4% on the day before the conflict began to 2.69% recently—the highest level since early 2023.
Demand Destruction Risk
The International Energy Agency revised its 2026 global oil demand forecast, projecting a Q2 2026 contraction of roughly 1.5 million barrels per day, which would represent the sharpest decline since the COVID-19 pandemic, with the revisions concentrated in the Middle East and Asia Pacific markets.