Return To Pre-War Oil Prices Unlikely

Oil prices rose on Monday after Israel ordered troops to push deeper into Lebanon, renewing concerns that clashes with the Iran-backed Hezbollah group could threaten a fragile ceasefire between Washington and Tehran.

Brent crude traded around $93 a barrel before the latest escalation in the Middle East and has previously in this crisis surged above $112 as traders priced in the growing risk of supply disruptions.

Although prices have eased from peak levels, Nigel Green warns that markets are underestimating the lasting impact of geopolitical tensions on energy costs.

Around 20% of global oil consumption passes through the Strait of Hormuz, making it one of the world's most important energy arteries.

The implications stretch far beyond oil producers.

Global oil demand remains close to record highs at more than 103 million barrels per day, while spare production capacity remains limited relative to historical averages. A tighter supply-demand balance means relatively small disruptions can have an outsized impact on prices.

Higher oil prices also feed directly into inflation. Economists estimate that every sustained $10 increase in crude prices can add between 0.2 and 0.4 percentage points to inflation in advanced economies.

Fuel costs affect transportation, manufacturing, logistics, food production and consumer goods, making oil one of the most influential inputs across the global economy.

Energy equities are among the clearest beneficiaries of a prolonged period of elevated crude prices.

At the same time, several sectors face increasing pressure.

Fuel typically accounts for between 25% and 35% of airline operating costs, making the industry particularly vulnerable to higher crude prices.

Transportation companies, logistics operators and energy-intensive manufacturers also face margin compression as operating expenses rise.

Consumer-facing businesses could encounter additional headwinds if households devote a larger share of disposable income to fuel and utility bills, reducing spending elsewhere.

Emerging markets are likely to experience a growing divergence.

Currency markets are already reflecting some of these pressures.

Nigel Green argues that investors should view oil as one of the defining macroeconomic forces shaping markets over the coming years.

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