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Oil at US$120 is a spike – the shift behind it isn’t

Oil at $120 might not stick, but the playbook has changed – energy is now part of the geopolitical toolkit, and markets are recalibrating fast.

Words by Nigel Green, group CEO and founder of deVere Group

Oil at $120 may not last, but the forces driving it are unlikely to fade as quickly as the price suggests. Treating this as just a short-lived spike risks missing what’s actually changed.

The immediate move is clearly event-driven. A US-led blockade of the Strait of Hormuz has disrupted a route that carries around a fifth of global oil and gas supply. Markets have reacted fast.

Oil started the year near $60, closed last week around $105, and surged past $120 within days. Moves of that scale tend to reverse if tensions ease or supply resumes.

A pullback is entirely possible. If negotiations progress or flows restart, prices could fall back sharply from current levels. This part of the cycle is familiar.

This isn’t just another oil spike

What’s different is the role energy is now playing.

Donald Trump is maintaining the blockade as leverage to force Iran back into a nuclear agreement. Supply is being constrained deliberately to apply pressure. Oil is no longer simply reacting to geopolitical developments, rather it’s embedded within them.

Markets operated for years on a working assumption that while tensions existed, core supply routes would remain broadly intact. This assumption has, clearly, weakened. Once a chokepoint such as Hormuz becomes part of a negotiation strategy, it stops being neutral infrastructure, instead it carries ongoing risk.

Even if oil falls back from $120, it’s unlikely to be priced as though this route is stable and predictable. That shift is already influencing expectations.

Inflation and growth feel it first

Inflation is the first area where this is felt. Energy feeds into almost every part of the economy. A spike pushes prices higher quickly, and a persistent risk premium keeps pressure in place even after the initial move fades.

Therefore, any expectation of a smooth decline in inflation becomes harder to maintain.

Growth is affected in parallel. Companies can absorb temporary increases in costs. They struggle more with uncertainty that lingers. Margins tighten, investment decisions are delayed, and confidence weakens. Economies that rely heavily on imported energy, such as China and the UK, face greater strain than those with stronger domestic supply.

Markets had begun to position for a more supportive backdrop, with easing price pressures and improving conditions. Elevated energy costs, will then of course, disrupt that path, meaning that assumptions made earlier in the year need to be reconsidered.

How markets are repositioning

From an investment perspective, this is about recognising a shift in how risk is structured.

Energy and commodity exposure is being repriced for a reason. Companies with strong pricing power are better placed in an environment where input costs are rising. Sectors with tight margins or heavy transport exposure are more vulnerable if elevated prices persist.

Geography matters more as well. Economies with domestic energy production have a degree of insulation. Those dependent on imports are more exposed to sustained price changes and volatility.

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Source: Stockhead