Geopolitics throws the oil and gas price equation out of kilter
Part of my role in producing content for brokers and financial advisers involves cutting through expert jargon and geopolitical noise to work out what actually matters to their clients. For today's write-up, the challenge was to unpack the 2026 Middle East conflict, already entering its second month. The Iran-Israel-US death dance has played havoc with oil and gas prices and global supply chains, forcing analysts to rethink economic growth and inflation forecasts, not to mention estimates for asset class returns.
A geopolitical framing
To help you frame your next adviser-client discussion, I attended a recent KPMG Global Economic and Geopolitical Outlook webinar that examined cost pressures and pricing decisions; market volatility and funding conditions; energy and supply chain spillover effects; and investment and operating plan responses in the current geopolitical framing. “You will leave with a clear view of what has changed, why it matters now and the key signals to watch over the next several weeks,” promised the event invite.
Well, yes and no. To make sense of a month-long conflict with so many moving parts is impossible in a one-brand, 60-minute whip-around. Those attending the webinar, and advisers who read this coverage, will come away with a better understanding of some of the immediate impacts, but you will be little wiser on the likely duration of the conflict, or how far it might escalate. The inflationary pressures should be clear from your recent trips to the fuel station, and everyday experience tells you how these hikes filter through to the broader cost of living.
Regina Mayor, Global Head of Clients and Markets at KPMG US, was tasked with steering a discussion with four of her global peers. She set the scene, saying that risks were elevated and that the Middle East conflict was impacting energy markets, global trade flows and financial and economic outcomes. “Today’s leaders do not have the luxury of time to fully process what is happening before you have to make decisions and act with confidence,” she said.
Stefano Moritsch, Global Geopolitics Lead at KPMG International, was tasked with describing the geopolitical context as the world eased into Q2 2026. He said it was difficult to provide a practical framing relevant to business leaders because the world was still blighted by the fog of war.
“We are moving into a prolonged, structurally unstable environment; even when we have periods of apparent de-escalation, those efforts are not likely to restore normality,” he said. Global decision makers thus face an ebb and flow of high-intensity conflict and constant, normalised disruption.
Chokepoints and counter-strikes
Just over a month into the Middle East conflict, Iran continues to threaten shipping through the Strait of Hormuz, launching strikes across Gulf Cooperation Council countries, while Israel and the United States (US) sustain and expand their military postures. According to Moritsch, “disruption is becoming embedded across multiple systems” spearheaded by constrained, volatile energy markets.
The expert offered an unlikely best-case scenario of a managed pause “where back door diplomacy prevails, and the world could see a temporary halting of strikes alongside efforts to find a negotiated settlement [to allow] the gradual resumption of normal traffic through the Strait of Hormuz.” Even in this upbeat scenario, the threat environment will persist for as long as Tehran’s government is hostile towards the US.
The worst-case scenario, dubbed ‘scorched earth’, would see an uncontrolled escalation of tit-for-tat strikes against Iranian and Gulf state energy infrastructure, and the long-term closure of the strait. “If that happens, we could expect a severe and significant global economic shock,” Moritsch said. He believes a managed escalation is most likely given the US’s desire “to restore deterrence … and ensure safe passage to the Strait of Hormuz” and the Israelis’ focus on “neutralising Iran’s conventional military capability.”
Impossible to predict
Scenario analysis is useful, but there is a risk in disappearing too far down the geopolitical rabbit hole. Advisers are unlikely to predict the next move in Tehran, Tel Aviv or Washington with any accuracy; their real edge lies in identifying outcomes and helping businesses and households to prepare for them. As the discussion played out, a future of supply chain disruption, higher oil and gas prices and restrictive monetary policy to try and combat the inflationary effects seemed inevitable.
The conversation turned to the impact of the conflict on oil and gas markets, given how energy is inextricably entwined with the global macroeconomic outlook. Mayor asked Diane Swonk, Americas Regional Chief Economist at KPMG in the US, about the supply chain shocks consequent to the conflict-related energy fallout. The economist pointed out that supply chain disruptions tended to be inflationary and warned that oil and gas were not the only commodities transiting through the Strait of Hormuz.
Inflation, scarcity and low growth
In the weeks since the Iran-Israel-US conflict kicked off, the world has seen significant price pressure for helium, a key input in chip manufacture, and aluminium. “This conflict is coming at a time when we are already colliding with a front-running cycle, yet again, in tariffs in the US, which is putting pressure on supply chains,” Swonk said, forecasting a period of inflation, scarcity and lower economic growth. “We are expecting global growth to be the weakest since the pandemic, and the weakest since the 2008-2009 GFC,” she said.
The panel moderator then turned to Yael Selfin, Europe, the Middle East and Africa Regional Chief Economist at KPMG in the UK, and Dr Brendan Rynne, Asia Pacific Regional Chief Economist at KPMG Australia, to explain how central banks were positioning for the conflict fallout. Selfin said the European Central Bank (ECB) was weighing three factors including the non-linear, duration-linked impact of the conflict; the overall economic environment; and recent episodes of inflationary pressure.
On the first factor, the ECB expects a disproportionately stronger impact on growth, inflation and rates the longer the conflict continues. On the second, it sees the world in a better place in early 2026, measured by growth and inflation, than when Russia invaded Ukraine in February 2022. Today’s fiscal discipline and tighter monetary policy give policymakers more flexibility to respond to the crisis. “The ECB is concerned that we will see a faster pass-through of price increases today compared to 2022,” Selfin said, hinting at two ECB rate hikes for the year.
An interest rate about-turn
The Bank of England (BOE) may have to act more aggressively because inflation in the United Kingdom (UK) was still above its 2% target when the conflict started. “Prior to this crisis, we were expecting three more BOE cuts this year to reach the neutral level, where the ECB is already; now we are expecting some increases this year,” Selfin said. “Markets are already factoring in between two and three hikes in the BOE interest rate.” The central banks in the APAC region were responding cautiously too.
“We had some rate cuts on the cards for the remainder of this year, but they are now looking to pause those,” Dr Rynne said. “There are some banks, including those within Australia, that are considering tightening interest rates over the period, particularly where inflation has been more persistent.” Inflation outlooks have worsened due to higher oil and gas prices and weakening current accounts across the net energy importing countries in the region, with Indonesia and the Philippines likely to hike rates too. Japan is sitting pretty, with inflation at just 1.3% and over 250 days of oil reserves.
Mayor finished the in-depth discussion with a lightning round of practical advice for the audience. Moritsch said business leaders should focus on agile decision making and not delay these decisions in the hope of a perfect information environment. “One of the hardest things to do is to act in a time of uncertainty, but if you do not act, there will not be any returns,” Swonk added, also warning leaders against inaction.
Opportunity amidst supply constraints
According to Selfin, “the current crisis looks like it will have significant longer-term implications ... even beyond what was covered by the panel today.” She encouraged attendees not to lose sight of the structural changes that will emerge from energy market disruptions, notably in aviation, tourism and technology. Dr Rynne offered a more enthusiastic close, calling on attendees “not to panic” and encouraging them to seek opportunities amidst the disruption.
And that, for your writer, was the real takeaway. Advisers who add value through crisis are not those who make the boldest geopolitical predictions, but those who can translate oil and gas price volatility, and the resulting return of inflation and interest rate hikes, into clear financial and investment advice. Your clients need someone who can help them execute on their long-term financial plan despite the geopolitical noise.
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