Oil price shocks usually lead to a recession
Considering how oil price shocks in the past have affected the economy, stock market bulls need to be a little more careful.
BCA Research chief global strategist Peter Berezin said in a new note that every recession in the US (except the COVID-19 pandemic) has preceded an oil price shock (see chart below).
“The current macro environment is a toxic mix of many of the same vulnerabilities that have plagued the global economy before past recessions: rising oil prices, an unsustainable technology capital spending boom, high equity valuations, sky-high home prices, and increasing stresses in private credit and other parts of the financial system,” Berezin said.
He added: “Shares look increasingly oversold in the near term but will still finish the year below current levels.”
Read more: How do oil price shocks affect your wallet, from gasoline to groceries?
Since the launch of Operation Epic Fury on February 28, global oil prices have experienced their steepest rise since the 1970s. The conflict triggered the virtual closure of the Strait of Hormuz, a vital route for 20% of the world’s daily oil supply, resulting in an immediate and massive “war premium” for every barrel.
While the prices of Brent crude oil (BZ=F) increased by 45% to over $100 per barrel, Citigroup does not rule out $150 per barrel. WE gas prices on average it went up to $4 per gallon.
“[Higher gas prices are] “There’s definitely a recession in the short term,” Gary Cohn, a former Trump administration figure, said on Yahoo Finance’s Opening Quote.
“There is nothing more instantaneous for a consumer than standing there, holding the gas nozzle down and watching the numbers tick at the pump,” he said. “And if they were paying $80 a week ago, and they’re paying $85 this week, and they’re paying $60 a month ago, they know, ‘I lost $20 in disposable income filling up this tank of gas,'” Cohn added.
Read more: What could an extended war with Iran mean for gas prices?
Numerous cracks began to surface in the economy and markets, triggered in part by rising oil prices.
The University of Michigan’s preliminary consumer confidence reading for March fell to 55.5, a 2026 low. Interviews conducted before the attacks on Iran showed rising consumer optimism, but data collected in the nine days following the military action “completely erased” those gains.
Personal finance expectations fell 7.5% nationally; This decline spread across all income levels and political leanings. Meanwhile, flash PMI manufacturing surveys for March point to a sharp slowdown in activity.
