Key Points
Following the outbreak of war involving Iran, energy costs have surged sharply. However, stock markets continue to rally, indicating that investors are underestimating the impact of high energy prices. As industries such as chemicals, food production, and aviation are weighed down by soaring costs, market professionals fear a severe economic recession is approaching.
Amrita Sen, Founder and Director of Market Intelligence at the energy consultancy Energy Aspects, stated that the global economy is unwittingly heading towards a significant recession, driven by investors persistently underestimating the impact of oil price shocks. Despite the Middle East conflict pushing energy costs higher—oil prices have risen over 50% since the US-Iran conflict escalated on February 28—the S&P 500 index still hit a new intraday record high last week, reaching 7230.12 points on May 1. Sen remarked, "This is currently the most puzzling phenomenon. In our view, oil prices should be higher, and stock markets should be significantly weaker." She added, "I believe we are sleepwalking into a fairly substantial economic downturn." She argues that many investors are currently gripped by extreme complacency, broadly underestimating the effects of this energy shortage and mistakenly believing the impact is largely confined to Asian economies. While OPEC has pledged to increase production, Sen cautioned that this increase is more symbolic than substantive and is far from sufficient to fill the market supply gap. "A Massive Energy Crisis" She pointed out that the critical factors are when the Strait of Hormuz will reopen, to what capacity, and how quickly. "If the strait remains obstructed for a prolonged period, global crude oil demand would need to fall back to 2013 levels, equivalent to a reduction of approximately 10 million barrels per day, while the global population is now one billion larger. This is the core challenge—only continued rising oil prices can force demand to cool down." Intercontinental Exchange Brent Crude Futures for July 2026 Quote: $110.66, up $2.49, a gain of 2.30% Looking ahead, Sen expects $80-$90 per barrel to become the new medium-to-long-term floor for oil prices. Sustained high oil prices will transmit across the entire commodities complex, affecting liquefied natural gas, chemicals, fertilizers, and other categories. "The situation will quickly drive up food prices; disruptions in urea transportation, rising natural gas prices, and constrained gas supplies for the fertilizer industry will create a cascading effect." "This is an extremely serious energy crisis. I am also surprised that stock markets are completely disregarding the risks, solely focusing on strong first-quarter earnings reports. Second-quarter results will certainly not be as impressive." "A Reckoning is Approaching" The international benchmark Brent crude was quoted at $111.23 per barrel on Monday, up 2.9%; US West Texas Intermediate crude rose 2.2% to $104.16 per barrel. Jens Eisenschmidt, Chief European Economist at Morgan Stanley, also highlighted that violent oil price swings are creating widespread economic pressure: the airline industry is growing increasingly anxious about jet fuel shortages, US gasoline prices are climbing, and even manufacturing firms that use minimal oil in production are facing operational challenges. He stated, "Tension is visible across the entire economic system, and a reckoning is drawing nearer." Regarding the European economic outlook, Eisenschmidt said that if the conflict resolves quickly, the European Central Bank might temporarily look past this oil price surge and return to its 2% inflation target in June. However, he warned that this window of opportunity is closing rapidly, and the risk of inflation becoming entrenched continues to rise. "The next one to two weeks are a critical window for resolving the situation. If there is no breakthrough, the European Central Bank will most likely be forced to raise interest rates."
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