The current oil and commodity price shock has created an interesting pattern: The futures curve has moved further into backwardation, and market participants are shrugging off the headlines, discounting a short-term inflationary burst that would be rapidly corrected.

We should expect disinflationary pressures to dominate after the current energy shock, rather than a prolonged inflation crisis. The mix of a backwardated oil curve, a shrinking money supply, slow money movement, and a strong US dollar suggests that once the temporary rise in crude prices goes away, we should see lower, not higher, overall inflation.

Recent geopolitical tensions have pushed crude above $100 per barrel (Brent), reviving fears of a new inflation wave. However, the structure of the oil market shows that this is being priced as a short‑lived supply disruption, driven by a geopolitical risk and scarcity premium in the front end, not a persistent shock.

Europe is heading toward a new and potentially worse energy shock because it wasted the respite after 2022, relying on warm winters and U.S. LNG instead of reversing nuclear shutdowns, relaxing bans on resource development, or ensuring long-term gas supply security. The current crisis is being triggered by the escalation of the Iran conflict and disruptions in the Strait of Hormuz, with Kuwait and Qatar declaring force majeure, shutting down key production like Ras Laffan, and driving Brent above 100 dollars and TTF gas prices up more than 50% in a week, while European storage sits at low levels heading into the critical injection season.

At the same time, Europe is losing a global bidding war for LNG cargoes to Asia, faces self‑inflicted vulnerabilities from Spain’s diplomatic clashes with both the United States and Algeria, and remains dangerously exposed to a full Russian gas cutoff despite claims of diversification. A combination of Middle East disruptions, reduced U.S. volumes, and a Russian shutdown would likely mean rationing, deeper industrial recession—especially in Germany—and double‑digit energy cost inflation, revealing how ideological energy policies, nuclear phase‑outs, and regulatory obstacles have left Europe fragile just as oil heads toward 90–100 dollars and gas prices again soar.

Tressis chief economist Daniel Lacalle analyzes the Federal Reserve’s moves amid geopolitical uncertainty on ‘Making Money.’

https://www.foxbusiness.com/video/6391029186112

The current oil price forward curve shows that the current global energy shock may be significant but short-lived. The forward curve presents a steep disinflationary trend to $80 per barrel by the end of 2026. Markets are discounting a short war with limited impact on supply but immediate ripple effects on markets and importing economies.

In the worst case, a new energy shock triggered by war with Iran would bring stagflation pressures across the global economy, especially in the economies that have been unable to strengthen their energy supply chains since 2022, like the European Union, which is still in a low-growth environment subject to significant impact from energy shocks. Even if the conflict is short‑lived, the disruption to the Strait of Hormuz and Gulf infrastructure has made the oil market go from an oversupply of 4 million barrels per day, according to the IEA, to a tight balance, as shipping routes come under pressure.