Oil at $111 as War Disrupts Strait of Hormuz; Markets Face ‘Misplaced Euphoria’

Key facts

• Brent crude reached $111.23 per barrel on Monday, up 2.9%.
• The S&P 500 hit a record intraday high of 7,230.12 on May 1.
• Oil prices have soared more than 50% since the U.S.-Iran conflict began on Feb. 28.
• Roughly 10 million barrels per day of oil are offline due to the Strait of Hormuz closure.
• Citi Research trimmed its 2026 global growth forecast to 2.7% from 2.9%.
• Mapfre Economics forecasts global growth of 2.9% this year and inflation of 3.7%.
• Amrita Sen of Energy Aspect expects $80-90 per barrel as the new floor.
• Morgan Stanley’s Jens Eisenschidt cited airline jet fuel shortages and rising U.S. gasoline prices.

A Record Stock Market Ignores a 50% Oil Surge

The S&P 500 touched an all-time intraday high of 7,230.12 on May 1, even as the cost of energy has surged more than 50% since the U.S.-Iran war erupted on Feb. 28. That disconnect — a buoyant equity market alongside a spiraling oil shock — has left analysts deeply unsettled. “This has been the biggest conundrum for us — if anything, we think oil should be higher and the equity market should be a lot, lot weaker,” said Amrita Sen, founder and director of market intelligence at Energy Aspect, in an interview. “I think we're sleepwalking into potentially a pretty big recession.” Sen described an “extremely misplaced euphoria” among investors who continue to dismiss the energy squeeze as a problem confined mainly to Asian economies. The warning comes as Brent crude hit $111.23 per barrel on Monday, a 2.9% rise, while U.S. West Texas Intermediate climbed 2.2% to $104.16.

Strait of Hormuz Closure Removes 10 Million Barrels a Day

The immediate driver of the price spike is the closure of the Strait of Hormuz, through which roughly 10 million barrels per day of oil normally transit. “The story is really when Hormuz reopens, and at what capacity and what pace it reopens,” Sen said. If the disruption persists, she warned, the world would need to return to 2013 demand levels — about 10 million barrels per day less — despite having added a billion more people. Citi Research, in a report led by global chief economist Nathan Sheets, echoed that view: “Should that disruption persist, it would represent a significant negative supply shock that would weigh on growth while pushing inflation higher.” The bank has trimmed its 2026 global growth forecast to 2.7% from 2.9% and raised its headline inflation forecast to 3.3% from 2.6%. Even if production resumes quickly, some Middle Eastern capacity has sustained damage, potentially leaving several million barrels per day offline for a year or longer. Citi now expects a much tighter oil market in the second half of the year, with Brent closer to $75–$80 per barrel rather than the pre-conflict $60 path.

Central Banks Face a Dilemma as Inflation Pressures Mount

Market pricing indicates that major central banks — including the Federal Reserve, European Central Bank, Bank of England and Reserve Bank of Australia — will pursue tighter monetary policy in response to higher oil prices, though the expected paths are less aggressive than a few weeks ago. Citi has raised its monetary-policy forecasts for 14 of the 27 central banks it tracks, and now expects two ECB rate hikes this year, albeit with reservations about their advisability. In contrast, the U.S. team at Citi believes the Fed will look through the oil shock and cut rates later this year. That divergence underscores the uncertainty facing policymakers as they weigh the risk of stagflation against the need to support growth. Mapfre Economics, the research arm of the Spanish insurer, described the global cycle as moving toward a “stagflationary” environment, driven by geopolitical tensions, logistical disruptions and energy shocks. “Geopolitics is consolidating itself as the guiding axis, subordinating monetary policy to rigorous risk management,” it noted in its second-quarter forecast update.

Asia Bears the Brunt of the Energy Shock

The impact of the conflict is asymmetric across regions. Asia faces the most acute exposure due to its heavy reliance on energy imports and the affected maritime routes. Citi’s largest growth markdowns are concentrated in parts of Asia, including Singapore, Vietnam and the Philippines, with appreciable reductions also in Sweden and South Africa. India, by contrast, continues to look relatively resilient. Mapfre Economics projects Asia will grow 4.5% this year and next, with inflation of 1.3% and 1.4%, respectively. But the region’s vulnerability is heightened by its dependence on the Strait of Hormuz for energy supplies. The United States, as a net energy producer, is better positioned to absorb several months of higher inflation, with Mapfre forecasting U.S. growth of 2% this year and 1.9% next, and inflation of 3.3% and 2.1%. Europe is expected to grow at a weaker pace than previously anticipated, with Mapfre estimating 1% growth in 2026 and 1.2% in 2027, and inflation of 2.5% and 2%. The region faces persistent inflationary pressures from energy and transportation costs, shaping what Mapfre called a “transitional scenario rather than a clearly defined trajectory.”

Food Prices and Fertilizer Shortages Loom as Next Crisis

Beyond the immediate oil shock, analysts warn of cascading effects on food production. “Just wait for food prices to start going up because of what's going on; the lack of urea transport; and natural gas prices, or natural gas being curtailed in the fertilizer sector,” Sen said. The disruption of urea — a key fertilizer — and rising natural gas costs threaten to push agricultural prices higher, compounding the strain on households already grappling with elevated energy bills. Morgan Stanley’s chief Europe economist, Jens Eisenschidt, pointed to spiraling anxieties within the airline industry over jet fuel shortages, as well as rising gasoline prices in the U.S., and growing challenges faced by manufacturers whose products use “just a drop of oil.” The breadth of the shock, he indicated, is far wider than energy alone. Sen described the situation as “a massive, massive energy crisis,” adding that while first-quarter corporate results have been strong, “they are not going to be great nearly to the same extent in Q2.”

A Fragile Optimism Tempered by Downside Risks

Despite the grim warnings, some analysts see reasons for cautious optimism. Citi’s report balances the narrative of “heightened uncertainties” with one of “increased economic resilience.” The global economy has absorbed a remarkable sequence of adverse shocks in recent years, and the production side is more adaptable and flexible than a decade ago. Investment tied to artificial intelligence and other technological advances looks increasingly robust, potentially raising productivity growth over time. Yet the risks remain material. In an adverse scenario where tensions flare again and Brent prices spike to $120 per barrel through year’s end, Citi estimates global growth could fall to a range of 1.5% to 2%, with headline inflation approaching 5%. In that environment, the risk of recession or a disruptive stagflationary episode would rise sharply. Mapfre Economics, for its part, forecasts global growth of 2.9% this year and 3% next, with inflation of 3.7% and 3%, respectively. But the research arm stressed that the outlook is provisional, subject to the unpredictable evolution of geopolitical tensions and the reopening of key shipping lanes.

Lasting Scars on Energy Markets and Global Economic Order

Even under a favorable scenario where the Strait of Hormuz reopens quickly, the conflict is likely to leave lasting marks on energy markets. Some Middle Eastern production capacity has been damaged, potentially keeping several million barrels per day offline for a year or longer. That structural reduction in supply, combined with higher demand from a growing global population, points to a new era of elevated oil prices. “If you assume that the Strait remains disrupted for a longer period of time, you are saying that we all need to go back to 2013 demand levels, about 10 million barrels per day less… we've added a billion more people,” Sen said. “I think that's the challenge we have right now — we need oil prices to go up so that we can get the demand reduction.” The episode is also likely to accelerate energy diversification and a renewed drive to rethink elements of the global economic order, as nations seek to reduce their vulnerability to geopolitical shocks. For now, the world watches the Strait of Hormuz, where the fate of oil markets — and the global economy — hangs in the balance.

The bottom line

• Oil prices have surged more than 50% since the U.S.-Iran war began on Feb. 28, with Brent crude at $111.23 per barrel.
• The Strait of Hormuz closure has removed roughly 10 million barrels per day from global supply, a shock that could persist for months.
• Citi Research cut its 2026 global growth forecast to 2.7% and raised inflation to 3.3%, warning of stagflation risks.
• Analysts warn of ‘misplaced euphoria’ in equity markets, which hit record highs despite the energy crisis.
• Asia, especially Singapore, Vietnam and the Philippines, faces the largest growth markdowns due to energy import dependence.
• Food prices are expected to rise as fertilizer shortages and higher natural gas costs ripple through agricultural supply chains.