Brent went from 71 dollars a barrel on 27 February to 94 by 9 March, and above 100 within a fortnight, following military action in the Middle East and the effective closure of the Strait of Hormuz. Roughly a fifth of global oil flows transit that chokepoint. The immediate coverage is about the level. The level is the least interesting part.
Sources: EIA Short-Term Energy Outlook, global oil markets, March 2026 for the 27 February and 9 March quotations; market reporting for the 12 March level. The Strait of Hormuz was effectively closed to most shipping traffic from 28 February.
Three channels, three lags
An oil shock reaches consumer prices through channels that operate on very different timescales, and conflating them produces bad forecasts.
Direct, within weeks. Motor fuel and household energy are in the consumer price index and reprice almost immediately. This is mechanical, large, and reverses when the price does.
Indirect, two to four quarters. Transport and distribution costs, petrochemical feedstock, plastics, fertiliser. This is where a crude price becomes a food price and a goods price. It is slower, smaller per unit, and broader.
Second round, a year or more. Wage bargaining responds to realised inflation, which feeds back into prices. This is the only channel that converts a temporary shock into a persistent one, and it is behavioural rather than mechanical.
Everything that matters for policy turns on whether the third channel opens. The first two are arithmetic.
Why the historical analogy overstates the effect
Three structural differences argue for a smaller passthrough than historical episodes of comparable size. Energy intensity of output has fallen substantially across advanced economies, so a given percentage move in crude affects a smaller share of the cost base. The renewable share of generation has risen, partially decoupling electricity prices from oil. And inflation expectations start from a materially better anchored position than they did in 1973 or 1979, which is precisely the condition that determines whether the second-round channel opens.
The supply response also matters. Inventory drawdowns, production outside the Gulf and demand-side policy all limit the physical shortfall relative to the price move. A large part of what is currently in the price is a risk premium, and risk premia can unwind quickly when the risk resolves.
The asymmetry in the central bank's position
A supply shock raises prices and lowers output. There is no policy that improves both. Tightening addresses the inflation and worsens the growth; holding does the reverse. This is why supply shocks generate unusually visible disagreement inside monetary policy committees, and why the useful question is not what a central bank will do but what it will tolerate.
The incidence will be very uneven. Energy exporters outside the conflict zone gain on terms of trade. Energy importers with strong technology exports may find the two effects roughly offset. Energy importers with an energy-intensive manufacturing base and no technology upside are the group with nothing on the other side of the ledger. Europe is the obvious case.
Indicators to monitor
Not the crude price. Tanker transit volumes through the strait, which tell you whether the physical disruption justifies the premium. Core inflation forecasts rather than headline, because a rising headline with a stable core is a shock passing through rather than propagating. And wage settlements in jurisdictions with indexation practice, which is where the second round would appear first if it appears at all.
Sources
- EIA Short-Term Energy Outlook, global oil markets, March 2026
- EIA, Today in Energy, first quarter 2026 petroleum price review