- The European Commission is expected to lower its economic growth forecast for spring 2026 and raise its inflation outlook. Executive Vice President for an Economy that Works for People, Valdis Dombrovskis, has publicly warned that Europe is experiencing a stagflation shock.
- High-frequency data from the International Energy Agency indicates that the Middle East conflict has caused a historic disruption in crude oil supply, with the daily flow of 20 million barrels through the Strait of Hormuz nearly halted, and global crude oil inventories decreased by 117 million barrels in April alone.
- International oil prices are fluctuating at a high level between $100 and $110 per barrel. In April, the average price of North Sea crude oil surged by $16.5, and global companies have incurred at least $25 billion in additional operating costs due to the conflict.
Accelerating Deterioration of Europe's Macroeconomic Fundamentals
The upcoming spring economic forecast report from the European Commission will officially confirm the structural weakening of Europe's macroeconomic fundamentals. The geopolitical conflict has disrupted energy supplies, forcing Europe to endure a dire situation of slowing economic growth coupled with persistently rising inflation. EU policymakers have pointed out that the current policy maneuvering space has significantly narrowed compared to the COVID-19 pandemic period. High public debt and inflation pressures limit the introduction of large-scale fiscal stimulus measures. Future support policies will be highly constrained, only allowing for temporary and targeted fine-tuning measures to avoid further stimulating fossil fuel demand. This also means that Europe lacks sufficient fiscal hedging tools when facing external supply-side shocks.
Emergence of a Historic Crude Oil Supply Gap
According to the latest industry data released by the International Energy Agency, the Middle East conflict has caused unprecedented damage to the global energy supply chain. Since the outbreak of the conflict, over 14 million barrels of daily production have been forced to shut down globally, with cumulative supply losses surpassing the 10 million mark. In April, OECD onshore oil inventories significantly decreased by 146 million barrels in a single month, indicating an extreme shortage of commercial reserve buffer space. Despite the continuous release of strategic oil reserves by multiple countries, it remains difficult to fully fill the supply vacuum caused by the blockade of the Strait of Hormuz. The International Energy Agency predicts that by 2026, global oil supply may decrease by 3.9 million barrels year-on-year to 102.2 million barrels per day, with the supply-demand gap continuing to widen in the short term, leaving global commercial oil inventories with only a few weeks of buffer days.
High Prices and Policy Uncertainty
The severe disruption on the supply side has directly pushed up energy spot and futures prices. Brent crude oil prices previously reached a high of $144 per barrel and, although they have recently retreated, they still hover at a relatively high level of $100 to $110 per barrel. Energy research firm Enverus estimates that the average Brent crude oil price for the entire year of 2026 may remain at $95 and further rise to $100 in 2027. The sustained high oil prices not only provide long-term support for inflation but also systematically dampen economic growth momentum. If the Middle East conflict does not achieve a substantial ceasefire by the end of May, some regions in Europe may face the extreme risk of physical energy shortages, and the re-evaluation of monetary policies by major economies could further intensify, potentially leading to a complete halt in the path of interest rate cuts.
