deVere warns Iran oil shock could unsettle global portfolios

deVere Group cautioned that escalating US-Iran tensions and a surge in oil prices risk reigniting global inflation and potential volatility for investors’ portfolios.

The stark warning from deVere Group CEO Nigel Green follows oil’s sharp rally as escalating US military action against Iran has injected fresh volatility into global markets, with Brent crude briefly pushing above $82 a barrel in Asian trading before settling near $78, up roughly 7% on the session.

Green said, “Investors are now confronting a renewed inflation threat at a moment when price growth in major economies remains above or only just approaching central bank targets. When Brent jumps at this speed, inflation arithmetic changes quickly across developed economies.”

The Bank of England estimates that a 10% increase in the price of Brent crude typically adds around 0.2 to 0.3 percentage points to UK inflation.

He said the significance of that multiplier is being underestimated. “A sustained move of this magnitude would materially lift headline consumer price index (CPI in the UK.
“Policymakers who believed inflation was moving steadily back toward target would face renewed pressure,” he added.

UK inflation recently stood above the bank’s 2% objective, with services inflation proving persistent. An additional energy impulse would risk embedding higher expectations among households and businesses.

He extended the warning to the United States. “US inflation remains sensitive to fuel costs. Gas prices feed directly into consumer sentiment and inflation expectations. If crude pushes toward $90 or $100, the pass-through into CPI becomes unavoidable.”

The Federal Reserve targets 2% inflation and has spent several years combating post-pandemic price acceleration, but energy shocks complicate that effort.

“Even if core measures exclude food and fuel, sustained oil increases tend to bleed into transportation, logistics, manufacturing input costs and ultimately consumer prices.

“Oil does not operate in isolation. Higher freight costs, higher airline fuel bills, higher distribution expenses. Corporate margins tighten or prices rise. Often both.”

In the euro area, recent moderation in headline inflation has been partly supported by softer energy costs.

A reversal would challenge the European Central Bank’s (ECB) easing assumptions. “Europe is structurally more exposed to imported energy volatility. Any disruption to Middle Eastern supply routes tightens the supply-demand balance and amplifies price swings. Inflation progress across the bloc could stall.”

Australia faces similar sensitivity. With inflation running above the Reserve Bank of Australia’s 2-3% target band, additional energy pressure risks delaying policy relief.

“Australian households are already managing elevated living costs. Fuel and transport are highly visible expenses. A prolonged crude rally would filter quickly into domestic inflation data,” Green said.

Beyond direct CPI mechanics, he also stressed the behavioural dimension. “If businesses anticipate persistent input cost increases, pricing decisions adjust pre-emptively. If workers expect higher living costs, wage demands strengthen.”

Geopolitical escalation heightens the probability of supply disruption in the Strait of Hormuz, a corridor that handles roughly a fifth of globally traded crude. Even without physical blockage, risk premiums expand when military tensions intensify.

“History teaches us that markets price risk before barrels disappear. Insurance costs rise, shipping routes shift, futures curves steepen. Volatility alone can sustain higher benchmark prices,” he explained.

Energy-driven inflation also narrows central bank flexibility. “Rate-cut expectations would weaken under sustained oil pressure,” said Green.

“Central banks can’t overlook an externally generated price surge. Policy would remain tighter for longer, weighing on growth.”

Financial markets, in his view, are beginning to incorporate that scenario. “Equities can absorb temporary spikes,” he said. “Extended conflict changes the calculus. Earnings forecasts assume stable input costs. If crude remains elevated, revisions will follow.”

He concluded: “If oil keeps climbing, inflation will climb with it, and central banks are forced back onto the defensive.”

Re-disseminated by Wealth and Society