The crisis in the Gulf is giving rise to a new kind of… inflation. That of economic and financial analyses coming in from all sides, like Iranian drones… Before disagreeing on the remedies, analysts agree on a clinical diagnosis: we are experiencing a supply shock of rare severity, marked by the net withdrawal of 10 million barrels a day from the global market. All agree that this energy shock differs from that of 2022 in its structure. At that time, surging post-pandemic demand clashed with a failing supply; today, global demand is already fragile, or even non-existent in certain sectors.
Another key point of consensus is the inelasticity of fuel demand in the short term. As the Oxford Economics team points out, for every 1% rise in price, consumption falls by only 0.03%. This observation of powerlessness in the face of prices is something on which experts agree: diesel, the driving force behind agriculture and freight, cannot be replaced overnight, making economies particularly vulnerable to a persistent ‘energy tax’.
The Temptation of Force: The Shadow of 2022
For some observers, however, inaction is the greatest danger of all. The markets are already pricing in a 45% probability of a Federal Reserve rate hike, compared with just 12% before the conflict began. In the eurozone, pressure is also mounting. Investors have reacted to the surge in energy prices by pricing in a rise of nearly 75 basis points in the ECB’s deposit rate. This strategy, known as a ‘pre-emptive hike’, aims to ensure that medium- and long-term inflation expectations do not drift away from the 2% target.
As Alexandre Drabowicz, Global Chief Investment Officer at Indosuez, points out, the European Central Bank remains “haunted by the memory of 2022”, a period when its response – deemed too late – drew sharp criticism. In Asia, this tightening is already a forecast reality. Homin Lee, senior macro strategist, observes that for countries such as Australia and Japan, the crisis will lead to “further monetary policy tightening by the end of the year”. In particular, he forecasts a final rate hike by the Reserve Bank of Australia in May, and two hikes by the Bank of Japan in April and October.
The ‘Maradona-style move’: feinting as a political strategy
Contrary to this consensus on monetary policy, Goldman Sachs is bucking the trend by predicting not one, but two rate cuts by the end of 2026. Manuel Abecasis, an economist at the firm, believes that raising rates in this context “would exacerbate the damage to the labour market rather than help to control inflation”. According to his analysis, it is “virtually impossible” for the Fed to tighten policy solely because of an oil shock. He is banking on the fact that the US economy has drastically reduced its energy dependence since the 1970s, which should limit the spillover to core inflation.
At the heart of this dilemma, Indosuez’s strategy team, led by Bénédicte Kukla, puts forward a bold proposal inspired by a footballing metaphor from former Governor Mervyn King. Rather than taking drastic action, the ECB could opt for a ‘Maradona-style move’. The idea: just as the Argentine player would run straight ahead whilst deceiving defenders with his feints, the Central Bank could “dribble past” economic agents by signalling an intention to tighten policy without actually doing so. This feint is deemed “essential to contain so-called second-round effects on inflation”: if businesses anticipate a rise in rates, they will be more reluctant to pass on their costs to selling prices. Bénédicte Kukla believes that a “straight-line dribble” could still enable the 2% target to be met without undermining the investment that Europe so desperately needs.
When energy becomes a tax
However, this monetary chess game could be swept aside by the persistence of the conflict. For Kevin Thozet, a member of Carmignac’s investment committee, the question is no longer the scale of the shock, but its duration. He points out that “a spike can be absorbed, but persistence is hard to stomach”. Whilst the rise in oil prices is initially seen as a sign of high inflation, it inevitably turns into a “genuine tax on growth”. In his view, this tax squeezes margins and erodes purchasing power. Kevin Thozet warns that between the ninth and thirteenth week of the crisis, the narrative shifts: concerns about growth take over and short-term rates “then begin to ease”, regardless of the price of oil.
Finally, it is impossible to understand Europe’s hesitation without looking to Germany. Hans Bevers, chief economist at Degroof Petercam, points out that on the ground, ‘schoolchildren still have in their minds the images of wads of cash needed to buy bread’ – a cultural reference to hyperinflation that is paralysing consumer psychology. This trauma, reignited by the shock of 2022, is driving households towards massive precautionary savings of 20%, rendering the German economy immune to conventional remedies. Hans Bevers observes that in this climate of fiscal uncertainty, any rise in interest rates could turn the current fiscal ‘hole’ into a recessionary chasm. As the countdown begins ahead of the ECB meeting on 30 April, businesses are calling for just one thing: a “boring but stable policy”.
