Oil’s New Security Premium Puts Inflation and Rate Cuts at Risk
Cheap oil may not return soon, and Devere Group CEO Nigel Green said June 1 that investors should prepare for a short- to medium-term shift in energy pricing, keeping inflation and rate-cut hopes under pressure. He argues that investors are underestimating a supply-security premium that could reshape returns across stocks, bonds, currencies, and commodities.
Brent crude traded near $93 a barrel after Israel ordered troops deeper into Lebanon, raising concern that clashes with Hezbollah could strain fragile U.S.-Iran ceasefire efforts. Earlier in the crisis, Brent climbed above $112 as markets priced possible disruptions across major energy routes. Green says investors may be too confident that crude will retreat once tensions ease.
“Many investors are assuming oil could quickly fall back toward pre-war levels when tensions do ease,” Green says, cautioning:
“We believe that assumption is becoming increasingly difficult to justify. Energy markets are pricing a new reality in which supply security carries a significant premium.”
The latest move in Brent and West Texas Intermediate, the U.S. oil benchmark, shows how quickly traders reprice crude when Middle East tensions threaten supply flows. Oil remains below crisis highs, showing markets still weigh diplomacy and softer demand. Green’s warning focuses on the longer-term risk: even when fighting eases, the market may keep paying more for secure supply.
Higher Crude Prices Could Hit Stocks, Bonds, Airlines, and Currencies
Global oil demand remains near record highs, above 103 million barrels per day, while spare capacity remains limited by historical standards. That tight balance leaves markets exposed to modest disruptions. Green argues this helps explain why crude may stay elevated after immediate tensions ease, especially with about 20% of global oil consumption moving through the Strait of Hormuz.
Higher crude prices can move quickly through the global economy. Fuel affects transportation, manufacturing, logistics, food production, and consumer goods. A sustained $10 increase in crude can add 0.2 to 0.4 percentage points to inflation in advanced economies. That could slow expected rate cuts and pressure government bonds, growth stocks, airlines, logistics firms, manufacturers, and oil-importing economies.
Green said:
“We believe a return to pre-war oil prices appears increasingly unlikely in the foreseeable future. Adapting to that reality could become one of the most important portfolio decisions for investors for the next few years.”
A competing view comes from Goldman Sachs Group Inc. Its analysts explained that persistent Middle East supply losses could push prices higher, while weaker demand could pull them lower. April oil sales data from China and Western Europe implied about 2 million barrels per day of downside risk to already low demand estimates. The analysis highlights the uncertainty surrounding crude demand, even as geopolitical risks continue to support prices.
