Six months into the Iran war, global energy markets continue to feel significant pressure as commercial and strategic oil reserves approach historic lows and regional attacks threaten further supply disruptions. According to analysis from Mercer Advisors Chief Investment Officer Donald Calcagni, the conflict has created a substantial mismatch between global energy supply and demand that is expected to persist through the near term. The International Energy Agency estimates that global oil consumption is expected to exceed production by approximately 3.9 million barrels per day in 2026, creating sustained upward pressure on energy prices.
U.S. energy prices have risen 16 percent year-over-year according to the Consumer Price Index, with the most visible impact appearing at the gas pump. The average price of a gallon of gasoline has reached $4.48, representing a 40 percent increase from a year ago. Diesel prices have climbed even higher, reaching $6.51 per gallon.
Current retail gasoline futures indicate that markets expect prices to remain elevated well into the first quarter of 2027 and above pre-war levels for the foreseeable future. Despite elevated energy costs, American consumers have demonstrated resilience by maintaining robust spending patterns. Rather than reducing consumption, households appear to be absorbing higher energy costs by saving at a lower rate, with the personal saving rate declining from 4.5 percent a year ago to 3 percent as of July.
Consumer spending, which accounts for over two-thirds of the U.S. economy, remains solid even as energy expenditures have increased. The United States enjoys a more favorable position relative to other major economies in terms of energy exposure. The U.S. imports less than 10 percent of its energy from the Persian Gulf and maintains a net energy exporter status overall.
This provides substantial insulation from direct impacts of Middle East supply disruptions. By contrast, Asian economies face considerably greater exposure, with China, South Korea, Japan, and India each sourcing 40-60 percent of their energy from the Persian Gulf region, according to J.P. Morgan data.
China has cushioned the global impact by drawing on substantial strategic energy reserves, though it has recently resumed larger purchases from international suppliers, adding to global price pressures. Inflation concerns stemming from higher energy prices appear manageable at present. While core inflation remains a consideration, U.S. core inflation has not yet shown significant elevation from higher gas prices.
Additionally, inflation expectations remain well-anchored, and the U.S. economy is considerably less energy-intensive than in past decades. Long-term interest rates have climbed during the Iran conflict, though multiple factors beyond geopolitical uncertainty are likely driving this increase, including stronger-than-expected economic growth, persistent inflation uncertainty, record federal debt and deficits, and surge in artificial intelligence-related capital expenditure. For investors navigating this uncertain environment, Calcagni emphasizes that portfolio diversification and duration management remain critical strategies.
In fixed income positioning, many portfolios maintain durations somewhat shorter than broad benchmarks to reduce sensitivity to rate movements during periods of heightened uncertainty. The outlook for 2027 depends heavily on resolution of Middle East tensions. If the conflict resolves, supply is expected to exceed demand next year due to a combination of pent-up supply and some demand destruction from elevated prices.
However, the near-term trajectory points to continued elevated energy prices. Source: Mercer Advisors, International Energy Agency, J.P. Morgan Asset Management, Consumer Price Index, American Automobile Association, Wall Street Journal
Source: merceradvisors.com