Page 11 - Policy Economic Report - April 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Global Inflation

Energy markets as the central transmission channel

The most immediate and dominant channel through which the conflict is affecting the global economy is
the energy market. The strategic importance of the Strait of Hormuz has come sharply into focus, given
that a significant share of global oil and liquefied natural gas trade passes through this narrow corridor.

Crude oil prices have already risen sharply, crossing the $100 per barrel mark, reflecting heightened risk
premiums and supply concerns. Natural gas markets, particularly in Europe, have also experienced
increased volatility. Beyond primary energy markets, the impact has extended to refined fuels such as
diesel and jet fuel, which play a critical role in global transportation and logistics.

Figure 3: Brent Crude Oil and Natural Gas Prices

Source- Bloomberg

The macroeconomic impact of the conflict operates through multiple interlinked channels:

• Direct increase in commodity prices raises production costs across sectors, particularly in energy-
intensive industries.

• These cost pressures generate second-round effects, as firms adjust prices and workers demand
higher wages, influencing inflation expectations and potentially leading to wage-price dynamics.

• The shock is transmitted through financial markets, where heightened uncertainty results in
tighter financial conditions, capital flow volatility, and reduced investment.

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