Global stagflation appears almost inevitable, and investors need to ensure now that their portfolios are built for resilience, warns the CEO of one of the world’s largest independent financial advisory organizations.
The stark warning from Nigel Green of deVere Group comes as oil has surged above $120 a barrel in highly volatile trading, after a historic spike of almost 29%—the largest intraday jump since April 2020—as escalating conflict in the Middle East disrupts supply and sends shockwaves through global markets.
The dramatic surge follows attacks on regional energy infrastructure and growing geopolitical tensions that have severely curtailed tanker movements through the Strait of Hormuz, the strategic corridor that normally carries around one-fifth of the world’s oil exports.
Nigel Green says: “The world is facing the very real possibility of a global stagflation threat.
“Stagflation is the toxic combination of rising inflation and slowing economic growth. Prices climb sharply while economies weaken, leaving policymakers with very few effective tools.”
He continues: “Oil is the ignition point. Energy prices surge this quickly, and inflation accelerates almost everywhere. Businesses face higher costs, households face higher bills, and growth is squeezed at precisely the same time.”
Energy markets have been thrown into turmoil as military escalation across the Gulf region disrupts production and shipping routes.
Several major exporters have already curbed output amid security concerns and operational constraints.
At the same time, threats against commercial vessels and attacks on energy facilities have dramatically reduced shipping traffic through one of the most important oil transit corridors in the global economy.
The deVere chief executive: “About 20% of global oil supply normally moves through that narrow stretch of water. Disruption there immediately tightens global supply and sends prices sharply higher.
“Financial markets have already begun reacting to the shock. Asian equities fell sharply as traders reassessed growth prospects and the inflation outlook in the wake of the oil spike.
Governments are scrambling to contain the fallout.
“Finance ministers from the Group of Seven are preparing discussions around a potential coordinated release of strategic petroleum reserves alongside the International Energy Agency, an emergency mechanism intended to stabilise supply during major disruptions.”
Emergency stockpile releases may calm markets temporarily, but they cannot erase the fundamental problem. Global energy supply has just been hit by a geopolitical shock, and those shocks historically take time to unwind.
Nigel green continues: “The scale and speed of this move matters enormously. A near-30% surge in oil in a single trading session is going to ultimately feed into transport costs, electricity generation, food production and industrial supply chains. Inflation pressure builds rapidly across the system.”
The consequences for policymakers are profound.
“Central banks now face a brutal dilemma. Inflation accelerates because of energy prices, yet economic growth slows because those same price increases act like a tax on consumers and businesses.”
“In a stagflationary environment, interest rates cannot easily solve the problem. Tightening policy can deepen the slowdown, while easing risks fuelling even more inflation. It creates a very uncomfortable economic trap.”
The vulnerability of the global economy stems in part from its ongoing dependence on energy flows from the Gulf. Roughly one fifth of global oil supply and large volumes of liquefied natural gas typically pass through the Strait of Hormuz each day.
Nigel Green says: “Energy security has suddenly become the defining macroeconomic issue again.
“The global economy remains heavily exposed to disruptions in this region, and events there can reprice inflation expectations almost overnight.”
He concludes: “Investors need to respond decisively now. Stagflation changes the investment environment dramatically.
“Portfolios must be built to withstand persistent inflation pressure while growth weakens. Energy exposure, commodities and carefully selected equities linked to real assets become increasingly important.
“Failing to review could be a costly mistake.”
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