Imagine: conflict in the Middle East spirals out of control. The Strait of Hormuz is closed – almost 20% of the world’s oil supplies pass through it. The market instantly loses 15-20 million barrels per day. Oil prices skyrocket, first to $150, then to $200. This is not science fiction. This is precisely the scenario being worked out by analysts at major banks. Let’s break down what this means for each of us.
The global economy is a complex mechanism that runs on cheap energy. As soon as energy prices triple, this mechanism begins to “jam.” We will see “supply-side inflation shock”: there will be fewer goods, and they will be more expensive. This is a direct path to global depression, where central banks will lose their main weapon, lowering interest rates, because any attempt to “print money” at such oil prices will lead to hyperinflation.
Why $150 Isn’t Just Expensive Gas
Oil is the lifeblood of the modern economy. It is embedded in the cost of literally everything: food transported by trucks, plastic packaging for every product in stores, electricity in factories, and airline tickets. When oil was at $147 in 2008, it became one of the triggers of the global financial crisis – and at that point, the world economy was already on the brink. Today, the debt burden is even higher, and the inflation shock of 2021-2023 is still fresh in the minds of central banks.
At $150, we are talking about roughly a twofold increase from the $75-80 level at which oil traded in 2024. At $200, it is almost a threefold increase. For the global economy, this means an additional 3-5 percentage points of inflation, recession in most developed countries, and a tough choice for every central bank: curb inflation and kill growth, or save the economy and lose control over prices.
The key contradiction of the shock: stagflation is a combination of high inflation and economic decline. It is in this scenario that monetary policy becomes powerless: raising rates hurts, lowering them is dangerous.
Sectoral Blow
The aviation industry is the first victim. Aviation fuel accounts for 20-30% of an airline’s operating costs in normal times. When oil prices double, routes become unprofitable, tickets become 30-60% more expensive, and passenger traffic declines. Small airlines and low-cost carriers simply close down. Large airlines ask for government assistance, as was the case during COVID-19. Related industries, the hotel business, international tourism, and civil aircraft manufacturing (Airbus, Boeing), will go into a deep slump. Orders for new airliners will be canceled by the dozens, as there will be no one to fly them and nothing to fly them on.
Sea freight – the second wave. Freight costs are skyrocketing, and supply chains are breaking down again. This is exactly what we saw in 2021–2022, only then the reason was COVID, and now it is war. Manufacturers in Asia who ship goods to Europe and the US are factoring price increases into their costs, and inflation is already flourishing on supermarket shelves.
The chemical industry and the agricultural sector are being hit hard by petrochemicals and fertilizers. Oil is a raw material for plastics, fertilizers, and pharmaceuticals. Expensive gas and oil mean expensive fertilizers, which means expensive food. Food inflation is becoming a real humanitarian disaster for developing countries.
Automotive and Retail: Sales of internal combustion engine cars will be the first to collapse. Electric vehicles (EVs) will receive a huge boost, but a new problem will arise: what to make them from? Metals, plastics, and component logistics will also become more expensive. Retail (Amazon, Walmart) will face the fact that “free shipping” will become impossible. The consumer basket will shrink to food and medicine.
Geopolitical Chessboard
The United States and Canada
The US is the world’s largest oil producer. It would seem that they should only stand to gain. But it’s getting more complicated. American consumers are the main driver of the economy, and they buy gasoline at the pump at market prices. With oil at $150 a barrel, a gallon of 95 octane gasoline costs more than $6-7, which means an additional $150-200 per month for Americans with SUVs. This is real money that does not go to stores, restaurants, or mortgages. Consumer spending is falling, and a recession is looming.
The Fed will be in hell. Inflation will soar again to 6-8%, but GDP growth will begin to slow. Raise rates? That means finishing off the mortgage market and corporate debt. Keep them steady? Inflation will take hold. Most likely, the Fed will slowly raise rates or keep them high, citing a “temporary shock.” The dollar is likely to strengthen as global investors flee to dollar-denominated assets as a safe haven during the crisis.
Canada, on the other hand, is a clear beneficiary. Alberta’s oil sands, producers in Saskatchewan, pipeline infrastructure – all of this is becoming a gold mine. The Canadian budget is in the black, the CAD is strengthening (following the price of oil as a commodity currency), and the stock market (with its huge oil weight) is growing. But Canada is not in a vacuum: if the US goes into recession, Canada will suffer through its trade ties.
The Eurozone and the United Kingdom
Europe is an oil importer without its own production comparable to its consumption. After the gas crisis of 2022, Europe was already living with high energy prices, and the surviving industry was operating at the limit of profitability. The new oil shock is hitting an already weakened economy.
Germany, the industrial heart of Europe, is suffering the most. Its chemical giants (BASF), car manufacturers (BMW, VW, Mercedes), and machine builders are facing high energy costs. At $200 per barrel, German industry is losing its competitiveness for good, and talk of Germany’s deindustrialization is no longer just theory. Germany’s GDP could shrink by 2-4%, which would be a deep recession.
The ECB will once again find itself at the crossroads it faced in 2022: inflation requires higher rates, while a weak economy requires lower rates. Most likely, the ECB will freeze rates at a high level and monitor the situation. The euro (EUR) will weaken against the dollar, further accelerating import inflation and creating a vicious circle.
The UK adds its own set of problems to this: the pound (GBP) traditionally weakens during periods of global stress, and the Bank of England finds itself in the same trap as the ECB. Britons with variable-rate mortgages and expensive gasoline (the country is small, but there are many cars) feel the shock very concretely – in their monthly payments.
China
China is 70% dependent on imports. China imports about 10-11 million barrels of oil per day. At a price of $200, the country’s annual oil bill increases by approximately $400-500 billion compared to the baseline scenario. This puts enormous pressure on the trade balance and inflation, even though domestic demand is already under pressure due to the real estate crisis. The yuan (CNY) will come under enormous pressure: on the one hand, it needs to be devalued to support exports, but on the other hand, this will make oil imports even more expensive.
The People’s Bank of China (PBoC) finds itself in a unique situation. On the one hand, import inflation is putting pressure on price growth. On the other hand, the economy needs stimulation. Beijing will likely follow a tried and tested path: subsidizing fuel for industry, devaluing the yuan slightly more to keep exports competitive, and accelerating the transition to electric vehicles – a policy that China is already pursuing aggressively. Incidentally, the oil shock will be a powerful argument for even greater subsidies for electric vehicles and solar energy.
Relations with Russia and Iran are a separate story. If the Western world loses part of its Middle Eastern oil, China will have a strong incentive to buy Russian oil at an even greater discount than it does now.
Japan
Japan is almost entirely dependent on energy imports. The country produces virtually no oil, and after Fukushima, its nuclear power plants were shut down for a long time. The oil shock is hitting Japan twice as hard: expensive fuel and a weak yen (the JPY traditionally weakens during periods of oil price growth because Japan is forced to spend more and more dollars on imports).
The Bank of Japan has kept interest rates at zero or in negative territory for years – first to combat deflation, then out of inertia. The oil shock means inflation, which Japan will have to do something about. If rates start to rise, the entire JGB (Japanese government bond) market will come under pressure – the largest debt market in the world, where public debt exceeds 260% of GDP. This is a systemic risk on a global scale. The Ministry of Finance will also need to resort to currency interventions to somehow keep the yen from falling gainst US dollar.
Japanese companies (Toyota, Honda, Sony) will face a headache: on the one hand, energy costs are rising, and on the other, the yen is weakening, making exports cheaper in dollars. For exporters, this is partial compensation, but for domestic consumers, it is additional pain. Japan’s export-oriented stock market may show unexpected resilience compared to Europe.
Australia and New Zealand
Australia is a major exporter of gas, coal, and metals. However, it imports oil, as its own production is insufficient to meet domestic demand. Nevertheless, rising energy prices are boosting the revenues of gas exporters (Woodside, Santos), while high metal prices, a direct consequence of inflation and military spending, are supporting the mining sector.
The Australian dollar (AUD) behaves like a commodity currency: it usually strengthens during periods of rising commodity prices, which partially offsets import inflation. The Reserve Bank of Australia (RBA) will most likely be forced to keep interest rates high for longer than planned.
New Zealand is in a more vulnerable position: its economy is smaller, its commodity exports are less diversified, and its dependence on oil is significant. The Reserve Bank of New Zealand (RBNZ), one of the world’s fastest-reacting central banks, is likely to hold or raise rates. The New Zealand dollar will be under pressure.
Southeast Asia
Vietnam, Indonesia, Thailand, the Philippines, and Malaysia are the world’s new manufacturing hubs, where companies have been actively relocating their factories from China. Most of these countries are net oil importers, making them direct victims of the shock.
Exceptions
The exceptions are Malaysia and Indonesia, which produce oil and gas. For them, $150-200 means additional budget revenues, although growing fuel subsidies for the population will partially eat into profits.
For the rest of the region, the scenario is painful: local currencies (the baht, peso, and rupee) are falling under pressure from rising import bills, and central banks are forced to raise rates to keep currencies and inflation in check. Production competitiveness is maintained thanks to weaker currencies, but the standard of living of the population is falling. Political instability in some countries in the region is increasing.
Financial Markets
Currencies
| Strengthening | Weakening |
| USD, CAD, NOK, SAR | EUR, JPY, GBP, NZD, EM currencies |
| The US dollar is a reserve currency, a safe haven in times of crisis. The Canadian dollar and Norwegian krone are oil currencies, rising alongside commodity prices. The Saudi riyal is backed by oil revenues. | The euro is weakening due to recession risks. The yen is weakening due to the trade deficit. Emerging market currencies are under pressure from capital outflows. |
The EUR/USD pair deserves a separate mention. In 2022, against the backdrop of the gas crisis, the euro traded below parity with the dollar (1:1) for the first time in 20 years. With an oil shock on the scale of $200/bbl, a repeat of this scenario is not an exception, but a fully expected baseline scenario.
Stock Indices, Bonds
| S&P 500 / Nasdaq | Initial sell-off of 15-25%. Technology stocks are falling harder – they are more highly valued. Recovery is slow amid the threat of recession. |
| European indices (DAX40, CAC40) | The decline is deeper than in the US: European industry is more vulnerable, and the recession is deeper. The DAX could lose 25-35%. |
| Energy sector | The main beneficiary. ExxonMobil, Chevron, Shell, BP – shares are rising in line with oil prices. The only bright spot in a declining market. |
| US Treasuries | Bond prices will plummet (yields will soar) as inflation of 10%+ renders fixed income meaningless. |
Metals
| Gold (XAU/USD) | With oil at $200, gold could soar to $5,500-6,000 per ounce. It will be the only asset that protects against the devaluation of paper money. |
| Silver (XAG/USD) | It follows gold, but is more volatile. Industrial demand (solar panels, electronics) partially offsets the economic slowdown with investment interest. |
| Platinum (XPT/USD) and palladium (XPD/USD) | It’s a complicated story. Platinum is growing as a safe-haven metal and due to shortages. Palladium is more industrial (catalytic converters) and depends on demand for cars. During a recession, it comes under pressure. |
| Copper | Short-term decline (recession fears), medium-term growth (military spending, renewable energy, supply shortage). “Dr. Copper” will be torn between two signals. |
Oil
| WTI and Brent | The obvious winner at the moment. But be careful: the market thrives on expectations, and at the first signs of de-escalation, oil could fall by 20-30% in a matter of days. |
Advice for traders: In this scenario, cash (in dollars) is king, and gold is its crown. Avoid airlines and automakers, and look to oil producers outside the Middle East (the US, Brazil, Guyana) and the defense sector. Shares in US oil and gas companies (XOM, CVX), which will pay out huge dividends on the bones of the global economy.
What Retail Traders Should Do: Three Principles
- First, don’t panic and don’t rush. The most costly mistakes when the market is driven by emotions rather than calculations.
- Second, diversification works precisely at times like these. Gold and short-term US bonds (T-Bills) historically rise when stocks fall. Oil companies and the Canadian market rise when Europe falls. A wisely assembled portfolio survives the shock without catastrophic losses.
- Third, look not only at the price of oil, but also at diplomatic signals. Oil shocks caused by geopolitics tend to unfold as quickly as they began. Peace talks, a ceasefire announcement, the opening of the strait, and oil falls by $40-50 in a week. Those who bought oil stocks at the peak of panic may get badly burned on the way out.