Oil prices are unlikely to return to their pre conflict levels any time soon, keeping inflation elevated and delaying interest rate cuts, deVere Group chief executive Nigel Green warns.
The caution comes as crude climbed on Monday. Brent gained about 2.4 percent to around $93 a barrel, and West Texas Intermediate rose nearly 3 percent, after Israel ordered troops to push deeper into Lebanon, renewing fears that clashes with the Iran-backed Hezbollah group could threaten a fragile ceasefire between Washington and Tehran. Brent had surged past $110 at the height of the crisis before easing. Roughly 20 percent of global oil consumption passes through the Strait of Hormuz, one of the world’s most important energy arteries.
Green argues that markets are underestimating how lasting the impact of geopolitical tension on energy costs will be. Many investors, he says, assume oil will quickly fall back once tensions ease, but he sees that as increasingly hard to justify, contending that energy markets are now pricing in a new reality where supply security commands a premium.
The fundamentals reinforce the risk, he says. Global demand sits near a record above 103 million barrels a day while spare production capacity is thin by historical standards, so even small disruptions can move prices sharply. Higher crude also feeds inflation directly, with economists estimating that every sustained $10 rise adds between 0.2 and 0.4 percentage points to inflation in advanced economies, since fuel touches transport, manufacturing, logistics, food and consumer goods.
That, Green notes, raises the prospect that central banks cut rates more slowly than markets expect, with higher for longer borrowing costs weighing on government bonds and growth stocks. Energy equities, by contrast, tend to outperform during major oil rallies as revenues and margins rise, and commodity exporting economies often see stronger fiscal revenues and trade balances.
Several sectors face pressure. Fuel typically accounts for 25 to 35 percent of airline operating costs, leaving carriers exposed, while logistics operators and energy intensive manufacturers face margin squeezes and consumer facing firms risk softer demand if households spend more on fuel and utilities. Green expects a widening split across emerging markets, with energy exporters gaining and oil importers facing higher inflation, weaker currencies and slower growth. He points to producer currencies such as those of the United States, Saudi Arabia, Qatar and Kuwait being supported in past price spikes, while importers including Japan, China, India and South Korea saw trade positions worsen.
“Oil influences inflation, interest rates, currencies, corporate earnings and consumer spending simultaneously,” Green said. Treating a rising oil price as a passing headline, he argues, underestimates the scale of the shift, and with a return to pre conflict prices looking unlikely for now, he says adapting portfolios to that reality could prove one of investors’ most important decisions in the coming years.
