Issue Risk: a prolonged Middle East conflict locks in high energy prices and inflation

Summary

The first downside risk is that the Middle East conflict drags on and high oil prices become entrenched. Brent has stayed far above pre-crisis levels since February 2026, and the report sees the path of prices over the next twelve months, rather than the initial spike, as the core danger. Tension around the Strait of Hormuz spills into natural gas, fertiliser, food and shipping, exposing fragile global supply chains. Higher energy and intermediate input costs could revive inflation, erode household purchasing power, delay central bank easing and prolong tight financial conditions. Energy importers and externally dependent economies could face worse terms of trade, currency instability and fiscal strain at once, and the world could confront stagflation-like pressure.