The Horizon: Energy Shock Volatility

Signals | Week Ending 14 March 2026 — Energy system rattled; stagflation risks re‑emerge; EU pivots (back) toward nuclear, plus this week’s strategic and systemic insights

Top Signal: The Global Energy System Continues to Rattle

The dominant signal in the global economy this week was the growing impact of the escalation of the conflict involving Iran and the disruption of shipping through the Strait of Hormuz, one of the world’s most important energy chokepoints that facilitates roughly 20% of global oil supply (and a significant amount of the global LNG trade). The impact of the crisis has already been described as one of the worst supply shocks to energy markets since the 1970s.

Over the past few days, the global energy system (and customers at service stations) continued to confront oil prices that surged well above and then continued to oscillate around the $100 per barrel mark after Iranian attacks on tankers and energy infrastructure across the Gulf. Markets don’t like uncertainty and thus reacted quickly this week: Asian equities dropped, and European markets weakened as investors reassessed inflation risks.

To stabilise markets, the International Energy Agency this week announced the largest strategic oil release in history, some 400 million barrels, following an extraordinary meeting of IEA Member governments.

Here is the IEA Executive Director Fatih Birol:

“The oil market challenges we are facing are unprecedented in scale, therefore I am very glad that IEA Member countries have responded with an emergency collective action of unprecedented size…”

However, even this unprecedented action may only cushion the shock rather than resolve it, as the Strait remains severely disrupted and OPEC members around the region are reported to be forced to curtail exports as infrastructure and shipping routes are disrupted. Moreover, in logistical terms, this strategic release by IEA members will also take some time to deliver to the market, suggesting that prices could remain elevated and deliveries will continue to be delayed. The release is best seen as a bridge, not a solution.

This matters because energy is a system input, not just a traded commodity. When the energy system is disrupted, costs ripple through manufacturing, transport, food production, and ultimately consumer prices.

The question right now is: how long is this crisis going to last? History shows that it is easier to start wars than end them. It was reported this week that Iran’s new president wants reparations to end the conflict; meanwhile, the number of attacks on container ships within the region has increased as Iran warned the world to get ready for $200 a barrel oil. This could last a while.

For businesses, particularly in Europe and Asia, the implications are particularly acute. Most of the oil from the region goes to Asia. Meanwhile, Europe had only recently stabilised its energy situation after the Russia-Ukraine disruption; the continent can probably absorb the current shock, but not for too long. While the US economy is more self-sufficient in terms of oil, the war in the Middle East still has an economic impact.

Elevated geopolitical risk impacts business in different ways, including hiring and capital expenditure; it can also affect the economy more broadly. Wars have a tendency to be inflationary over time as supply shocks tend to drive price increases. Reported new research from one major US investment bank this week forecasted US inflation ticking up to 2.9% in December (the target for the Fed is 2%). Meanwhile, GDP is expected to be 2.2% in the fourth quarter. However, at this point, we don’t know the full impact this war will have (many investment houses now expect the Fed to hold rates steady at next week’s meeting).

In short, the geopolitical risk premium has returned to the energy system. We may be in for a bumpy ride. IEA WSJ MarketWatch Barrons Irish Examiner The Hill WP

Key Signals

Risk of Stagflation is Back on the Policy Agenda

As energy prices jumped, economists have begun openly discussing a negative scenario that policymakers had probably hoped was well behind them and consigned to economic history: stagflation.

Brent crude pushing north of $100 a barrel has already started feeding into inflation expectations, while growth indicators remain fragile. This week, analysts, central banks, and prominent economists (such as Nobel laureate Joseph Stiglitz) were reported to be increasingly worried about a combination of rising prices and slowing economic momentum, which is the hallmark of stagflation.

In Europe, reports of several prominent German economic research institutes lowering 2026 growth forecasts due to the Middle East conflict’s impact on energy prices are indicative of the current economic environment.

Here’s the dilemma.