Oil price roller coaster: Could energy crisis fuel global inflation?

KUALA LUMPUR, 28 SEPTEMBER 2026 —

The global energy market remains in a state of prolonged shock, with Brent crude prices oscillating violently between $110 and $92 per barrel as geopolitical tensions in the Middle East continue to dominate economic forecasts.

The situation has reached a critical juncture where the stability of international trade routes and the resilience of national economies are being tested against the backdrop of a conflict that shows no immediate signs of resolution.

The immediate catalyst for the recent price surge was a dual-front disruption in the region. Dr. Amit Mor, CEO of Eco Energy Financial & Strategic Consulting and a lecturer at Reichman University, explained that two simultaneous events pushed oil prices up by more than 10% to $109 a barrel. First, the Houthis took control of large areas of Yemen and coastal territory along the Red Sea, securing full control of the Bab el-Mandab Strait.

Concurrently, pro-Iranian militias in Iraq attacked and damaged two pumping stations that transport Saudi oil through the East-West Pipeline. As long as these critical chokepoints remain blocked and the pipeline is not restored, market expectations suggest that oil prices will remain elevated, creating a persistent headwind for global economic recovery.

This disruption has exposed significant vulnerabilities in regional security architectures, particularly regarding Saudi Arabia’s ability to protect its export infrastructure. Mor noted that Saudi Arabia has been exposed as weak in the face of these threats, having failed to suppress the Houthis despite years of bombing campaigns. The Saudi government’s appeal to the United States for military intervention has gone unanswered, as the current U.S. administration is not interested in intervening.

Consequently, the Houthis have gained the upper hand, demonstrating to the world that they control critical chokepoints. Mor argued that as long as the United States fails to reopen traffic through the straits, Iran is emerging as the geopolitical winner of this conflict, leveraging its proxies to exert influence over global energy flows.

The economic ramifications of this energy shock are already visible in official forecasts, which have been revised upward to reflect the new reality. An OECD report published last week raised the inflation forecast for G20 countries to 4.1% in 2026 and 3.6% in 2027. The report characterized surging energy prices as a “tax on consumption,” a dynamic that erodes households’ disposable income and slows real global growth toward a range of 2.5% to 2.9%.

This inflationary pressure is hitting economies just as previous inflationary trends appeared to be easing, complicating the monetary policy landscape for central banks worldwide.

In response to these rising input costs, the International Monetary Fund has observed that higher energy prices have prompted many central banks to freeze plans for interest rate cuts. Some institutions are even considering or have already implemented modest rate increases to prevent inflation from becoming entrenched. The primary concern for policymakers is that rising input costs will feed into core inflation, cementing higher inflation expectations in the minds of consumers and businesses.

This shift in monetary policy stance adds a layer of financial stress to economies that are already grappling with the direct cost of fuel and transportation.

The disruption extends beyond crude oil to affect broader international trade and logistics. Houthi restrictions at the Bab el-Mandab Strait are disrupting international trade and driving up liquefied natural gas prices. Mor explained that under normal conditions, about 12% of global trade and around 30% of the world’s container traffic passes through the Bab el-Mandab Strait. When the Houthis block the strait, most goods arriving from East Asia are forced to sail around Africa.

This rerouting adds costly days at sea and drives up insurance and maritime freight rates worldwide, creating a ripple effect that impacts supply chains across multiple continents.

A review by the United Nations Department of Economic and Social Affairs, or DESA, highlighted how these higher shipping and diesel costs are raising agricultural and industrial input prices. These increases are passed directly on to supermarket shelves, affecting food security and consumer budgets. Rising prices for gasoline, diesel, and jet fuel are pushing up transportation and logistics costs globally.

As a result, manufacturing costs and agricultural inputs, such as fertilizer, are becoming more expensive, with those increases ultimately passed on to consumer goods and food prices. This transmission mechanism ensures that the energy crisis is felt in every sector of the economy, from industrial production to daily household expenses.

The financial implications of the crisis are also reshaping global capital flows. According to the European Bank for Reconstruction and Development, high energy prices are driving a major transfer of capital from energy-importing countries to exporters such as the Gulf states and Norway. Energy-importing countries are being forced to spend more foreign currency, mainly dollars, to buy fuel.

This outflow weakens their local currencies and creates a “double whammy” for import costs, as the depreciation of the local currency makes imported goods even more expensive. This dynamic exacerbates inflationary pressures in developing economies that rely heavily on imported energy and food.

The war in Ukraine is adding another layer of complexity, particularly for Europe, which is heading into winter with insufficient inventories after an exceptionally hot summer. Mor noted that because Qatar has halted part of its production and supply, LNG prices are surging. This increase is expected to sharply raise gas and electricity prices in Europe in the coming months.

The combination of reduced supply and increased demand during the winter season creates a precarious situation for European economies, which are already struggling with high energy costs and industrial competitiveness issues.

In Israel, the economic impact is nuanced, with the country possessing a unique structural protection mechanism in the electricity sector while remaining fully exposed to fuel and import prices. Mor stated that Israel is partially protected compared with Europe because it has very cheap domestic natural gas from fields such as Leviathan, Tamar, and Karish. Long-term contracts prevent a dramatic surge in household and industrial electricity rates, unlike what is happening in Europe.

However, when it comes to transportation and consumer goods, Israel is affected by global trends, particularly through the rise in gasoline prices at the pump.

Israel imports about 10 million tons of crude oil and refined petroleum products a year, making gasoline prices at filling stations directly affected by regional refined-product prices. An increase of half a shekel per liter has already pushed the price to a record 8.25 shekels per liter.

Another clear impact can be seen in consumer prices, as a small, open economy that imports most consumer goods by sea faces higher costs due to rerouting ships around Africa and the prolonged closure of the Port of Eilat. These factors are making shipping to Israel more expensive, with the result potentially being a weakening of the shekel against the dollar and higher prices across the economy.

Analyses by the Bank of Israel and the Central Bureau of Statistics indicate that these imported pressures could push core inflation to as high as 3%. This scenario would force the Bank of Israel’s Monetary Committee to keep interest rates high for an extended period, placing added pressure on borrowers, including mortgage holders. Despite these challenges, Mor urged keeping the situation in perspective, noting that a price level of $110 a barrel is not unprecedented.

From 2010 to 2014, that was the price level, equivalent to about $120 in today’s terms, and the world managed to survive. The global energy market today is less dependent on Gulf oil than it was in the past, and the main question is how long the disruptions to Saudi and Gulf supplies will continue.

In advising the Israeli government on how to protect itself from the effects of the energy crisis, Mor recommended a multi-pronged approach. In the short term, he noted that there is not much the government can do, as Israel is not going to attack the Houthis independently. However, he emphasized the need to immediately increase the economy’s strategic reserves of both crude oil and refined petroleum products.

To achieve this, additional emergency storage facilities need to be built. In the medium and long term, the steps should include a major push to encourage a transition to electric vehicles, broader reliance on solar energy sources, and the development of a decentralized energy system based on solar power and natural gas. These measures are identified as the main tools for enhancing energy security and reducing vulnerability to future geopolitical shocks.

Related: Dr. Amit Mor