The significance of the crisis lies not only in short-term market volatility but also in the possibility that sustained energy shocks could reshape inflation expectations, interest-rate outlooks and global asset pricing.
by Zhao Xiaona, Larry Neild
LONDON, March 16 (Xinhua) — Oil prices surged as global markets opened on Monday amid growing concerns that escalating tensions in the Middle East could disrupt energy supplies and ripple through global financial markets.
Brent crude, the international benchmark, rose 2.5 percent to 105.61 U.S. dollars per barrel in early Asian trading, while U.S. benchmark West Texas Intermediate climbed nearly 3 percent to 101.52 dollars. Brent has gained more than 40 percent since joint U.S.-Israeli strikes on Iran on Feb. 28.
The rally reflects fears that disruptions to shipping through the Strait of Hormuz, one of the world’s most critical oil transit routes, together with attacks on regional energy infrastructure, could tighten global supply.
IMPACT OF ENERGY SHOCKS
Analysts say the significance of the crisis lies not only in short-term market volatility but also in the possibility that sustained energy shocks could reshape inflation expectations, interest-rate outlooks and global asset pricing.
Patrick Minford, professor of applied economics at Cardiff University, told Xinhua that the most immediate economic impact of the crisis will come through energy prices.
“If oil prices remain elevated, they will feed into inflation and could influence expectations about interest rates,” he said.
The timing of the shock is particularly delicate. A busy week of central bank meetings is approaching, with the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan all scheduled to announce policy decisions. These meetings will offer the first formal opportunity for major central banks to assess the economic implications of the Middle East crisis.
According to projections by Oxford Economics, the current energy shock could push inflation in Britain and the eurozone roughly twice as much as in the United States and Canada, reflecting Europe’s heavier dependence on imported energy.
IMPLICATIONS OF GEOPOLITICAL UNCERTAINTY
Beyond macroeconomic effects, geopolitical uncertainty can also influence how financial markets price assets.
Hisham Farag, professor of finance at the University of Birmingham, said geopolitical risks typically appear in markets through higher risk premiums.
“When uncertainty rises, investors demand greater compensation for risk,” Farag told Xinhua.
The impact is unlikely to be evenly distributed across industries, Farag said. Defense, aerospace and energy-related sectors may benefit from rising demand and increased government spending, while industries that rely heavily on regional stability, including tourism, logistics and real estate, could face stronger headwinds.
Another channel through which the crisis could influence global markets is the investment behavior of Middle Eastern sovereign wealth funds.
Farag noted that Gulf sovereign wealth funds collectively manage trillions of dollars in assets and hold extensive investments worldwide, including an estimated 2 trillion U.S. dollars invested in the United States alone.
If geopolitical tensions persist, these funds may reassess their global investment strategies to strengthen portfolio resilience.
Farag also suggested that shifts in global capital allocation could create opportunities for some large emerging economies.
Countries with sizeable domestic markets and stronger long-term growth prospects, including China, Brazil and several resource-rich economies, could attract a larger share of long-term investment if global investors seek diversification beyond traditional Western markets, he said. ■
Economic Watch: Energy shocks from Mideast tensions to reshape global market outlook
