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Giorgio Curti

Research Senior Associate

16 April 2026

At the start of 2026, global growth seemed to be strengthening and broadening out beyond the US. The narrowly confined AI tech hardware boom was spreading to other countries and sectors, especially across Asia. Meanwhile, near-term inflationary pressures seemed to be abating.

Then came the latest conflict in the Middle East, effectively closing the Strait of Hormuz and interrupting nearly 20% of global oil and gas flows. As this month’s chart shows, the subsequent spikes in both the oil price and refiners’ margins imply that, at current consumption levels, worldwide expenditure on petroleum products is set to jump from 3.5% of global GDP to 5.5%.

This is a textbook stagflationary shock, expected to hurt economic growth whilst putting upward pressure on inflation. Empirical evidence suggests that, should it persist, the 50% oil price increase so far could, over the next couple of years, reduce US GDP growth by around 1.5 percentage points (ppt) and global growth by as much as 3.5ppt, as it propagates through supply chains. Over the same period, the oil price increase is estimated to add 100 basis points to the 12 month headline inflation rate globally.

However, any quantitative estimate has large error bands around it. Both the overall impact of the shock and the relative size of the ‘stag’ and ‘flation’ effects on individual countries will largely depend on economy-specific factors: the exposure to imports of oil and gas, the stage in the business cycle, the recent inflation experience of households and businesses, the reaction function of the central bank, the government’s readiness to provide fiscal support etc.

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China, Japan and South Korea stand out among major manufacturers for their reliance on energy imports from the Middle East and the relatively large size of energy-intensive sectors, though they also hold considerable stockpiles of fossil fuels. The UK is less exposed: it imports nearly no oil and gas from the Middle East, economic activity is skewed towards services, and households spend a lower share of their income on food and energy. By contrast, the US has, since its shale revolution, become the largest oil producer in the world and is roughly self-sufficient for its energy needs. It therefore emerges as a relative winner.

Central bankers face difficult trade-offs. On the one hand, the recency of the 2022 inflationary episode and several years of above-target inflation mean wage and price setting behaviour may be more significantly impacted by a second wave, potentially leading to a broadening out of the inflationary shock.

On the other hand, at the time of Russia’s invasion of Ukraine, the global economy was recovering from the pandemic: most developed economies’ labour markets were considerably tighter, their aggregate demand stronger and their governments’ fiscal stance more expansionary than today. In fact, large fiscal stimuli likely played an essential role in further fuelling inflation amid the 2022 energy crisis.

Nowhere are these differences starker than in the UK. A weak labour market, muted consumer and business confidence and constrained fiscal space mean risks today are skewed towards sluggish economic activity, rather than sustained inflationary momentum. Whether a prolonged oil shock causes an economic slowdown, or a swift resolution leads to a normalisation of energy prices, we think the bar to policy rate hikes is high. So, when the Bank of England struck a hawkish note at its March meeting and markets reached for their 2022 playbook, we saw the upward move in market interest rates as an opportunity to tactically allocate to medium-term (five year) UK gilts. This is an example of our ongoing evaluation of the opportunity set (alongside protection) amidst market volatility.

Looking over the horizon, the painful supply side shock central banks now have to contend with is an uncomfortable reminder of our changed world. At Ruffer, we have long expressed our view the ‘deflation machine’ era is being replaced by a new economic and market regime that is both more inflationary and more volatile. Geopolitical disruption and more frequent supply shocks are part of the unpredictable consequences of the demise of America’s hegemonic world order, accelerated by Trump’s return to the White House. In this new regime, inflation volatility is a feature, not a bug.

Giorgio Curti

Research Senior Associate

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Piers Wheeler

Director – Institutional

T +44 (0)20 7963 8258

Developing and executing asset management strategy for capital raising and strategic relationship management. Coverage includes EMEA, Asia and Australia. Piers joined Ruffer in 2021, having previously worked with asset management firms including Eastspring, AMP Capital and LEK as a strategic consultant. He holds a MA from the Bayes Business School and a BA (Hons) from the University of Oxford.

Annabel Paterson

Senior Associate – Institutional

T +44 (0)20 7963 8123

Joined Ruffer in 2021, having graduated with a first class honours degree in land economics from the University of Cambridge. After two years working with the UK Private Wealth team and completing her IMC and CFA Level I qualifications, she now supports Ruffer’s global business development and client servicing efforts.

Articles by Annabel

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