Media365
Brent crude has climbed back to the psychologically important $100-a-barrel mark, reigniting concerns that the global economy could be heading towards another bout of stagflation—a combination of high inflation and weak economic growth—as geopolitical tensions in the West Asia intensify and supply disruptions mount.
Brent crude has rallied nearly 40 per cent in July, putting it on course for its strongest monthly gain since March. European natural gas prices have also surged more than 40 per cent this month, while government bond yields across major economies have risen as investors reassess inflation risks.
The latest spike follows renewed hostilities in the Gulf after Yemen’s Houthi rebels reportedly attacked two Saudi oil tankers in the Red Sea, widening shipping disruptions beyond the Strait of Hormuz, one of the world’s most critical energy chokepoints.
The market is also grappling with tightening supplies from multiple sources. Russian fuel exports remain constrained after months of Ukrainian drone strikes on energy infrastructure, while Kazakhstan has reduced production following the shutdown of the Caspian Pipeline Consortium (CPC) export terminal. Together, these developments have significantly tightened global oil availability.
Trade tensions are adding another layer of uncertainty. The United States has imposed fresh tariffs ranging from 10 per cent to 12.5 per cent on imports from 60 trading partners, including the European Union and China, raising concerns that higher import costs could further fuel inflation.
The combination of expensive energy and trade barriers has revived fears of stagflation, particularly for energy-importing economies.
“Stagflation risk has been very much there for each economy since March, in different ways,” Reuters quoted Alessia Berardi, Head of Global Macroeconomics at Amundi Investment Institute, as saying. She added that the latest expansion of the conflict “increases the risk of stagflation for sure.”
Higher energy prices are already influencing financial markets. Traders have increased expectations that central banks, including the European Central Bank and the US Federal Reserve, may need to keep interest rates higher for longer, or even raise them further, to contain inflation.
That presents a difficult trade-off, especially for Europe, where higher borrowing costs could compound the economic drag already caused by expensive energy imports.
Morgan Stanley’s Global Head of Fixed Income Research, Andrew Sheets, noted that Europe could face a “double hit” from both elevated energy costs and tighter monetary policy.
Why Brent is struggling to move decisively above $100
Despite the sharp rally, analysts believe oil prices have struggled to establish themselves well above $100 because of one key factor—weak Chinese demand.
According to Emkay Global Financial Services, China’s crude oil imports in June fell to their lowest level since 2016, offsetting much of the supply tightness elsewhere in the market.
The brokerage said the decline could reflect larger-than-expected strategic petroleum reserves, slower industrial demand amid persistent overcapacity, or a combination of both. Regardless of the reason, weak Chinese consumption has become the market’s biggest shock absorber.
Emkay noted that while geopolitical risks around the Strait of Hormuz and the Red Sea remain significant, the market underestimated the structural factors supporting oil prices even after the US-Iran interim agreement in June briefly pushed Brent down to around $71 per barrel.
The brokerage argued that geopolitical uncertainty, logistical bottlenecks and inventory rebuilding continue to keep oil prices structurally elevated.
Structural shift in global oil demand
Beyond the immediate crisis, analysts also see a longer-term transformation taking shape in global energy demand.
Asian economies, led by China, are increasingly investing in renewable energy, battery storage and electrification, gradually reducing their dependence on imported fossil fuels. This transition is beginning to reshape the global oil demand outlook even as geopolitical risks continue to drive short-term price swings.
While volatility is expected to remain elevated, analysts say the balance between persistent supply disruptions and weakening Chinese demand will determine whether Brent can sustain levels above $100 or retreat once geopolitical tensions ease.
