Asset Management: Monthly Macro Insights - April 2026

The military conflict between the US, Israel, and Iran has crossed a decisive economic threshold. The closure of the Strait of Hormuz has transformed a geopolitical risk into a global supply shock affecting energy markets, supply chains, inflation dynamics, and monetary policy worldwide. The resulting environment could evolve into one of elevated inflationary pressure with weakening growth, increasing the likelihood of slowflation and raising the tail risk of stagflation.

The Strait of Hormuz: an underappreciated binding constraint

Roughly one fifth of global oil consumption and a significant share of liquefied natural gas (LNG) exports normally transit the Strait of Hormuz, and physical supply constraints have become binding.

More broadly, higher shipping costs, elevated insurance premia, and logistical bottlenecks are disrupting global value chains. Delays in intermediate goods deliveries undermine just in time production models, reduce capacity utilization, and discourage investment. The result is a drag on global output that extends well beyond the energy sector.

From slowflation to stagflation risks

Taken together, these dynamics significantly increase the risk of slowflation—characterized by weak growth combined with inflation that remains above central bank targets.

In a more adverse scenario, supply disruptions would persist and second round effects could emerge through wages, pricing behaviour, and inflation expectations. Economies could then face stagflation, with rising unemployment alongside entrenched inflation—a combination that would severely constrain policy options and echo the most challenging episodes of past energy crises.

Diverging central bank responses

For central banks, the challenge is acute. They cannot repair supply chains or reopen shipping lanes. In principle, a negative energy shock can be looked through if it is temporary and inflation expectations remain anchored. That calculus changes, however, when the shock risks evolving into a lasting inflationary regime.

While both the Fed and the ECB face the same external shock, their policy responses reveal important contrasts rooted in economic structure and energy dependence.

The Fed faces a complex trade off between inflation control and employment stabilization inherent in its dual mandate. On the one hand, energy prices are rising, while tariffs are also contributing to inflationary pressures. On the other hand, the US benefits from a high degree of energy self sufficiency, which limits the direct pass through from higher oil prices to domestic activity. As a result, the Fed has adopted a wait and see stance.

By contrast, the ECB has emphasized vigilance. Europe’s recent experience with high inflation following the 2022 energy crisis may accelerate pass through and second round effects, making firms and workers quicker to adjust prices and wages. This “inflation memory,” combined with Europe’s high energy dependence and weaker growth backdrop, places the ECB’s focus squarely on inflation persistence rather than headline inflation alone.

One thing, however, is clear: under a Hormuz driven supply shock, the global economic outlook has become profoundly uncertain.