Global investors may be dangerously underestimating the lasting economic consequences of elevated crude prices as Middle East tensions continue to reshape energy markets.
Oil prices climbed on Monday after Israel ordered troops to push deeper into Lebanon, reigniting fears that renewed clashes with the Iran-backed Hezbollah group could unravel a fragile ceasefire between Washington and Tehran.
The development has reinforced warnings from senior financial figures that energy markets have entered a structurally different era.
Brent crude, which traded around US$93 a barrel before the latest escalation, previously surged above US$112 during earlier peaks of the crisis as traders priced in growing supply disruption risks.
Although prices have since eased from those highs, Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory organisations, argues that markets are drawing the wrong conclusions from the retreat.
“Many investors are assuming oil could quickly fall back toward pre-war levels when tensions do ease,” said Green.
“But we believe that assumption is becoming increasingly difficult to justify.
“Energy markets are pricing a new reality in which supply security carries a significant premium.”
The stakes are amplified by geography.
Around 20 per cent of global oil consumption passes through the Strait of Hormuz, making it one of the world’s most critical energy arteries and a chokepoint whose vulnerability to regional conflict cannot be easily hedged away.
Structural demand conditions compound the challenge. Global oil consumption remains close to record highs at more than 103 million barrels per day, while spare production capacity is limited by historical standards — a combination that leaves markets exposed to outsized price swings from relatively modest supply disruptions.
The inflationary implications are significant. Economists estimate that every sustained US$10 rise in crude prices can add between 0.2 and 0.4 percentage points to inflation in advanced economies, with knock-on effects running through transportation, manufacturing, logistics, food production and consumer goods.
Green warns this could force central banks to keep borrowing costs higher for longer than financial markets currently anticipate, with material consequences across asset classes.
“Higher-for-longer borrowing costs would have implications for government bonds, growth stocks and other assets that benefit from lower rates,” he noted.
Not all sectors face headwinds.
Energy equities have historically outperformed broader equity markets during sustained oil rallies, benefiting from stronger revenues, margins and cash generation.
Commodity-exporting economies (including major Gulf producers) may also see improved fiscal revenues and trade balances.
By contrast, airlines face acute pressure given that fuel typically accounts for between 25 per cent and 35 per cent of their operating costs.
Transportation companies, logistics operators, energy-intensive manufacturers and consumer-facing businesses are also vulnerable as margins compress and household spending power erodes.
Green concludes that the recalibration required of investors is substantial.
“We believe a return to pre-war oil prices appears increasingly unlikely in the foreseeable future. Adapting to that reality could become one of the most important portfolio decisions for investors for the next few years.”
With currency markets already reflecting divergence between energy exporters and importers, the deVere CEO argues oil has moved beyond a cyclical variable to become a defining structural force shaping global market performance for years to come.
