Escalating geopolitical tensions in early 2026 have severely disrupted energy flows through the Strait of Hormuz, pushing oil prices above $110 and driving sharp increases in LNG prices. While production capacity remains largely intact, the inability to safely move and insure energy supply has triggered one of the largest oil supply shocks in modern history.
Markets have reacted quickly—but not conventionally. Inflation expectations have risen, government bonds have failed to act as safe havens, and divergence between energy exporters and import dependent regions has intensified. According to our latest paper, Energy Shocks, Macro Fallout and the Next Test for Markets, this initial repricing may only reflect the first phase of the adjustment.
History shows that it is not the size of an energy shock that matters most, but its persistence. A prolonged disruption risks embedding inflation, delaying rate cuts, tightening financial conditions, and exposing vulnerabilities in credit and private markets. In that case, geopolitical stress becomes a structural feature of the macro environment rather than a short-lived shock.
In this paper we explore:
- Why this energy shock is fundamentally different from previous crises
- How prolonged disruption could lead to stagflationary dynamics
- Where markets may still underestimate downside risks
- How scenario analysis helps investors prepare for persistent uncertainty
Authors
Amrit Summan FIA
Senior Consultant, Scenarios and Asset Valuation
Desi Volker
Senior Quantitative Financial Analyst
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