Energy Shocks Bring Stagflation Fears as Geopolitics Escalate

Energy security is once again at the top of investors' concerns due to repeated energy shocks and growing geopolitical tensions, according to Edmund Ching, Chief Strategist at BNP Paribas Wealth Management.

The world has experienced three major energy spikes in recent years: the 2021 spike when Brent crude doubled to $85 a barrel, the 2022 invasion of Ukraine which pushed crude oil to nearly $140 and sent European natural gas to record highs, and now the ongoing conflict with Iran and closure of the Strait of Hormuz.

The latest shock poses an acute risk of stagflation - weak growth and rising inflation - for energy-importing regions like Europe and Asia. The doubling of jet fuel prices in Europe and Asia is already forcing airlines to cancel routes that have become uneconomical due to 'demand destruction'.

Even with a rapid diplomatic solution, disruptions to global supply chains will take months to unwind, causing damage to growth and inflation for the rest of 2026.

Europe must accelerate investments in nuclear power, renewable infrastructure, industrial battery energy storage, heat pumps to reduce demand for gas for heating, and diversify electricity generation sources to mitigate future shocks. BNP Paribas recommends favoring European and American energy infrastructure investments and increasing exposure to natural resources sectors.