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Higher oil and gas prices influence many parts of the world economy, from transportation and power generation, to commodity production and industrial activity. When energy markets become volatile, it forces companies to build in buffers such as by holding more stocks, reroute ships or delay shipments until risks subside \u2013 all of which add to costs that will eventually filter down to consumers.<\/p>\n
Because oil is such a key input for most economies, rising prices tend to spill into inflation.<\/p>\n
Studies have shown that geopolitical oil shocks are significant contributors to global inflation, and the current tensions renew that risk. A prolonged price increase of US$15 per barrel can push global inflation higher by nearly 0.5 percentage points, while slightly reducing growth momentum by 0.2 percentage points.<\/p>\n
The impact varies across regions. The United States, now a large producer of oil and gas, is somewhat shielded from supply disruptions, though petrol prices and financial market sentiment still respond to global turbulence. The war in Iran also complicates the US Federal Reserve\u2019s inflation fight and rate-cut trajectory for interest rates.<\/p>\n
Europe remains more vulnerable, given its reliance on imported energy. Past experiences, such as Russia\u2019s invasion of Ukraine in 2022, have shown how the region’s inflation reacted more sharply to energy shocks.<\/p>\n<\/div>\n