Although tensions in the Middle East have not pushed oil prices above $100, they have led to a sharp double-digit increase in the last month. This rise has also boosted the prices of other resource-based commodities, especially metals such as aluminum. Oil tanker freight rates are also rising. All of this translates into higher costs for businesses, which are likely to be passed on to consumers.
It may be tempting to view these developments as ephemeral. After all, the global economy is losing momentum: the World Bank now forecasts a slowdown in global growth to 2.3% in 2025, almost half a percentage point lower than previous forecasts. In theory, this slowdown should reduce demand for resources and drive down prices. So, logically, the S&P 500 shouldn’t have much to worry about, right?
The reality, as always, could turn out to be more complex. First, NATO is set to unveil a major initiative to strengthen its capabilities at the upcoming summit, which will likely push member states to increase military spending. Meanwhile, China is actively stimulating its economy in response to new U.S. tariffs. As a result, demand for oil, metals, and other key commodities could turn out to be much stronger after all.
So, should we brace for a global surge in inflation?
Deutsche Bank recently warned that every $10 increase in oil prices could raise eurozone inflation by 0.4% and subtract 0.25% from GDP growth by the end of the year. On a global scale, Oxford Economics offers a more moderate view, suggesting that inflation could extend longer than expected if Brent stabilizes around $75 per barrel. So the rebound in oil prices may not yet be catastrophic, but it is far from innocuous.
As for freight costs, according to the UK's National Institute of Economic and Social Research (NIESR), a 10-point increase in shipping inflation could add around 0.5% to inflation in OECD economies. The good news is that, for the time being, costs remain below last year's highs. However, all in all, rising oil and metal freight prices are worrying central banks for now, which could force them to adopt a stricter stance.
So, where do things stand?
Another flare-up in the Middle East is hardly good news for the global economy, which explains the initial negative reaction of the markets (surge in XAUUSD and fall in S&P 500). The hope is that the situation stabilizes quickly and that worst-case scenarios — like a shutdown of the Strait of Hormuz — can be avoided. One encouraging sign is Monday’s sharp drop in oil prices, which should help ease inflationary fears.