BNP Paribas sees softer inflation hit from Iran-driven energy shock than in 2022
Current energy shock seen as less inflationary than 2022
BNP Paribas expects the recent surge in oil and gas prices following the conflict in Iran to have a milder impact on inflation than the energy shock of 2022, despite the scale of the supply disruption.
Economist Hélène Baudchon said weaker global demand and fewer supply bottlenecks should limit both price pressures and growth risks compared with the period after Russia’s invasion of Ukraine. She stressed that, while energy prices are rising sharply, the current backdrop does not yet support a broad-based inflation flare-up across major economies.
Massive supply disruption collides with weakening demand
The latest shock stems from a severe supply squeeze. The effective closure of the Strait of Hormuz has cut off nearly 20% of the world’s daily oil flows, forcing Gulf producers to shut in millions of barrels.
In March, global oil supply suffered its largest disruption on record, dropping by 10.1 million barrels per day. OPEC+ output recorded its second-largest monthly fall in history.
This has pushed Brent crude to an average of $103 per barrel in March, $32 higher than in February, with spot prices briefly nearing $128 in early April. The U.S. Energy Information Administration now expects Brent to average $115 per barrel in the second quarter of 2026 before gradually easing.
Yet this supply shock is hitting an already softening demand backdrop. The International Energy Agency has reversed its outlook and now projects global oil demand will contract by 80,000 barrels per day in 2026, instead of the substantial growth it previously forecast. This shift signals demand destruction as high prices and scarcity weigh on consumption.
According to Baudchon, this combination of weaker consumption and strengthened energy supply capacity outside the immediate conflict zone marks a clear difference from 2022. Then, the war in Ukraine severely disrupted markets at a time of strong post-pandemic demand.
Inflation is rising, but transmission looks more contained
The inflation impact is already visible. In the United States, annual inflation rose to 3.3% in March, driven by a 12.5% jump in energy costs. In the euro area, inflation picked up to 2.6%, also pushed higher by energy.
Baudchon argues, however, that the conditions for a broad inflation spiral are less present than in the previous shock. Global appetite for energy has diminished, and supply chains outside the conflict area have become more resilient, weakening the mechanisms that once transmitted higher energy prices across the wider basket of goods and services.
She cautions that the effects of energy price changes reach economies with a lag. The normalization process is likely to be gradual, with short-term volatility as higher costs move through production chains and, eventually, household consumption.
Central banks move faster to prevent second-round effects
Monetary authorities, Baudchon said, have learned from the inflation surge of 2021–2023 and are better prepared to react quickly to emerging spillovers. Central banks are focused on preventing feedback loops between prices, inflation expectations, and wages from reappearing.
European Central Bank President Christine Lagarde has reiterated that monetary policy cannot influence energy prices directly. However, she underlined that policymakers must act to stop second-round effects from becoming entrenched in wage-setting and broader price dynamics.
This stance suggests central banks will pay close attention to incoming data on core inflation and labor markets. Any signs that higher energy costs are feeding into broader price-setting behavior could become a trigger for policy action.
BNP Paribas builds dashboard to track the shock
To assess how this new energy shock is unfolding, BNP Paribas has assembled a set of indicators across key regions. The bank is monitoring developments in the eurozone, the United States, and major emerging markets, alongside oil and gas price trends.
The aim is to compare current patterns with those seen at the onset of the Ukraine war in 2022, when energy prices fed rapidly into headline inflation and growth forecasts.
Growth outlook dims amid higher volatility
The International Monetary Fund has revised its global growth forecast for 2026 down to 3.1%, citing the energy shock and geopolitical uncertainty. It warned that a more prolonged or intensified conflict could slow growth further, potentially to 2.5%.
Baudchon characterizes the current setting as one where a sharp supply cut is clashing with deteriorating global demand, fostering a period of heightened volatility. In such an environment, price direction could swing quickly as new information on supply, demand, or geopolitics emerges.
For traders and policymakers alike, the key question is whether the present shock will remain largely confined to the energy complex or once again spread more broadly through wages, services, and non-energy goods. BNP Paribas’ assessment so far is that, while the price surge is significant, the channels that previously magnified it into a full-scale inflationary wave now appear considerably weaker.
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