The Impact on Households Before Missiles: The Looming Global Stagflation Triggered by War and Rising Oil Prices

The Impact on Households Before Missiles: The Looming Global Stagflation Triggered by War and Rising Oil Prices

The Market is Optimistic, Reality is Tight—The "Compass" of Crude Oil Prices Broken by War

When war damages the economy, the first things usually noticed are stock prices and crude oil futures. However, the eeriness this time is spreading in less visible areas rather than the numbers we can see. In its World Economic Outlook published in April, the IMF projected that even if the war remains limited in duration and scope, the global growth rate would be 3.1% in 2026 and 3.2% in 2027, with global inflation expected to rise once in 2026 and then slow again in 2027. Moreover, the IMF indicated that without the war, the growth rate for 2026 could have been revised upwards to about 3.4%. In other words, the global economy, which was on the verge of improvement, has been tripped up once again.

This is why the term "stagflation" is once again becoming a reality. If prices rise alone, central banks can easily respond with tightening. If the economy deteriorates alone, it can be supported with rate cuts or fiscal spending. However, when high prices and economic slowdown occur simultaneously, the side effects are significant regardless of the direction taken. The IMF pointed out that rising commodity prices, strengthening inflation expectations, and tightening financial conditions are testing the recent resilience of the economy. Particularly vulnerable are emerging countries with limited policy space and fragile countries reliant on energy imports. This is because rising fuel, food, and transportation costs are compounded by concerns over high interest rates, high debt, and currency depreciation.

So, what makes the situation so precarious? One factor is the growing discrepancy between the "appearance" and "reality" of crude oil prices. Reuters reported that even if crude oil futures indicate relatively stable levels, much higher costs are occurring in the spot crude and refining sectors. As of mid-April, while Brent futures indicated around $95 to $100, the benchmark price for European spot crude surged to nearly $120, and some North Sea crude temporarily rose to nearly $150. The market is hopeful, incorporating the expectation that "a ceasefire will eventually occur and supply will return," but the spot market anticipates that "even if it returns, it will take months to years." The larger this discrepancy, the more likely businesses, governments, and households are to make erroneous judgments.

In reality, the turmoil surrounding the Strait of Hormuz has shaken psychology more than the numbers suggest. According to Reuters, the strait accounts for about 20% of the world's crude oil and LNG flow, and as of April 15, transit volumes were significantly below pre-war levels. On the 16th, Brent rose to $99.39 and WTI to $94.69, with the view spreading that if supply concerns persist, inventory drawdowns will continue. However, on the 17th, reports of the strait's reopening led to a sharp drop in crude oil prices below $89, slightly reviving expectations of a rate cut within the year. The issue is not the mere rise in prices but the repeated ups and downs that instill a sense among businesses and households that prices "might remain high."

This sentiment is already beginning to appear in consumer psychology. According to Reuters, citing a University of Michigan survey, the U.S. consumer confidence index in early April fell to a record low of 47.6, and inflation expectations for the next year surged from 3.8% to 4.8%. The survey's director noted that many consumers cited the war over Iran as a reason for economic deterioration in their free comments. High gasoline prices erode disposable income, reducing other expenditures. Rising energy prices eventually tend to spread to airfares, food, fertilizers, and transportation costs. This is why war is not just military news from distant regions but becomes news about living costs with a few weeks' delay.

 

Reactions on social media are also sensitively picking up on this "invisible living cost." The prominent perception is that "central banks are paralyzed." On X, the argument of a "stagflation trap," where rising crude oil prices push up inflation while employment and the economy weaken, making it difficult for the Fed to cut or raise rates, is strongly shared. In English-speaking market posts, the notion that "rising oil prices prevent rate cuts, but a weak labor market makes rate hikes difficult" is spreading, and in Japanese posts, there is a noticeable caution about the path of "rising crude oil prices → inflation → declining consumption → economic recession."

However, it's not all pessimism on social media. Another strong reaction is the conditionally calm argument that "this is not a permanent 1970s-style shock and will weaken depending on the course of transportation and ceasefire." On X, there is a cautious view that even if gasoline prices gradually stabilize, it will be difficult to return to pre-war levels due to disrupted production and transportation, and on Reddit, discussions are emerging that "if the ceasefire is maintained, the Strait of Hormuz fully reopens, and Brent stabilizes below $80 for several weeks, the stagflation narrative will significantly weaken." There is a growing recognition that "the turning point is not the absolute value of oil but its duration," neither bullish nor bearish.

On the other hand, there are also many posts from a more practical perspective. For example, there is the question, "If futures are underestimating the physical shortage of crude oil, aren't corporate earnings forecasts and stock prices still too optimistic?" Reuters pointed out that corporate performance forecasts have not collapsed much despite the oil price shock, and the market is inclined to "ignore" the war due to expectations for AI investments. While this is understandable from an investor's psychology, if supply recovery is delayed until summer and the physical shortage is quickly reflected in futures, not only prices but also asset price fluctuations will become significant. On social media, there is a large temperature difference on this point, with some saying "the market is too optimistic" and others saying "no, if the ceasefire progresses, the worst scenario can be avoided."

So, is it really the "return of stagflation"? I think it's too early to definitively say it's a replay of the 1970s at this stage. This is because demand itself is not completely collapsing, and central banks in various countries are more sensitive to the fixation of inflation expectations than before. In fact, when reports of the strait's reopening emerged, crude oil prices plummeted, and rate cut expectations quickly returned. In other words, the market still believes "it's not the worst." However, as both the IMF and Reuters repeatedly indicate, the longer the war drags on, the more likely it is that growth rates will decline and inflation will reaccelerate simultaneously. The problem is not that the shock occurred. True stagflation begins when everyone can no longer believe the shock is temporary.

The biggest scar left by this war on the global economy is not just the increase in crude oil prices. It is the breaking of the "compass" for reading the future direction of prices. Companies are unsure how to interpret procurement, central banks are uncertain how temporary to consider prices, and households brace themselves, wondering, "Will it be even tougher next month?" The longer this uncertainty persists, the more cautious investment and consumption become, and growth dwindles. The anxiety exchanged on social media ultimately converges on this point. What people fear is not the headlines of war itself. It is that war gradually changes the cost of living.


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