Falling oil prices ease global pressure, but Hormuz, AI, and El Niño still pose headwinds

Overview

This report assesses the global economy in 2026-2027 through the lens of the extension of the US-Iran ceasefire, the outlook for reopening the Strait of Hormuz, falling oil prices, the AI investment boom, and El Niño-related food price risks. HSBC believes that the decline in oil prices from the conflict peak to around USD80/b makes the base case more credible, while global GDP forecasts remain unchanged at 2.5% for 2026 and 2.7% for 2027, though the growth and inflation impact will vary significantly across regions.

Core views

The core view is that falling oil prices have eased pressure on policymakers, but have not eliminated supply-chain, food, and cost shocks. Consumer spending may continue to soften over the coming quarters as real wages are squeezed and credit conditions tighten. AI capital expenditure and exports remain important supports for growth, particularly benefiting Taiwan, the US, and Asia’s electronics chain, but AI buildout is also creating cost pressure for electricity, copper, chips, and components. If Hormuz cannot fully reopen, oil prices could rise again to USD140-150/b, thereby weighing on growth, pushing up inflation, and triggering tighter monetary policy.

Analysis framework

The report uses scenario analysis and a macro transmission framework to connect variables such as oil prices, energy supply, inventory rebuilding, inflation, consumption, central bank policy, fiscal policy, foreign exchange, and AI investment. The base case is built on a gradual and sustainable reopening of the strait and falling oil prices; the adverse scenario assumes only a partial reopening, persistent crude market shortages, continued inventory declines, and a marked rise in oil prices.

Methodology notes

• Scenario AnalysisBase Case and More Adverse Scenario

  By making different assumptions about a sustainable reopening or partial reopening of the Strait of Hormuz, the report compares oil prices, growth, inflation, and policy paths.

  The base case assumes Gulf output and transportation approach normal by the end of 3Q 2026; the more adverse scenario assumes the supply gap persists and oil prices could rise to USD140-150/b.

• Macro TransmissionTransmission from Energy Prices to Inflation and Consumption

  Higher energy prices lift headline inflation, compress real income, and increase corporate input costs.

  The report emphasizes that core inflation has not yet fully broadened, but food prices typically lag energy prices by 6-9 months, which could keep inflation elevated for longer.

• Structural GrowthAI Capital Expenditure and Trade Chain Analysis

  Investment in the AI ecosystem drives exports, industrial production, corporate profits, and wealth effects, but the benefits are unevenly distributed.

  Taiwan and the US benefit the most, with Asia’s electronics chain relatively advantaged; at the same time, AI buildout demand also raises the cost of electricity, metals, chips, and components.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Brent Crude

  Core macro variable

  Strengths

  The ceasefire extension and reopening commitment have brought prices down, easing pressure on global growth and inflation.

  Weaknesses

  The recovery of the strait, inventory rebuilding, and the return of Chinese demand could still tighten supply and demand again.

  Comparison

  The base case is around USD80/b trending down toward USD75/b, while the adverse scenario could rise to USD140-150/b.

  Risks

  Failure to fully reopen Hormuz, slower-than-expected recovery in Gulf production, and inventories hitting operationally low levels.

• USD

  Supported by energy surplus, safe-haven demand, and US growth resilience

  Strengths

  The US energy surplus, safe-haven status, and relatively stronger growth expectations support the dollar.

  Weaknesses

  If oil prices fall further and global risk appetite improves, upside momentum for the dollar may be limited.

  Comparison

  Stronger than the currencies of most energy-importing countries, though China is separately excluded from some of the report’s comparisons.

  Risks

  A reversal in Fed policy expectations, and changes in the path of global trade and energy shocks.

• Asia Electronics Export Chain

  AI investment beneficiary asset

  Strengths

  AI capital spending continues to drive exports, industrial production, and global trade.

  Weaknesses

  The benefits are concentrated and uneven, with divergent wealth effects and employment impacts on the consumer side.

  Comparison

  Taiwan and the US benefit most clearly, creating electronics-driven growth divergence between Asia and other regions.

  Risks

  Power bottlenecks, rising chip and component costs, and trade friction and tariff pressure.

• Food and Agricultural Products

  Lagged inflation risk carrier

  Strengths

  No obvious investment advantage; mainly reflects upside price risk.

  Weaknesses

  Diesel, fertilizer, transportation, and El Niño shocks may affect output and import costs.

  Comparison

  Emerging markets, especially India and Brazil, are more vulnerable to food inflation, while developed economies may also be affected through imported food and packaging costs.

  Risks

  Stronger-than-expected El Niño intensity, continued rises in agricultural input costs, and second-round transmission of food prices.

• Global Interest Rates

  Mapping of inflation and policy response

  Strengths

  Falling oil prices reduce the need for some central banks to keep hiking, and the ECB and BoE may stop raising rates.

  Weaknesses

  Food and AI-related costs may cause inflation to decline more slowly than expected.

  Comparison

  The report believes some Asian economies may still face pressure to continue hiking in the second half, while Mexico and Brazil are more likely to extend their pauses.

  Risks

  Broadening core inflation, currency depreciation pressure, and central banks being forced into more aggressive tightening.

Key data

• Brent Oil Pricearound USD80/bFollowing the 60-day ceasefire extension and the commitment to reopen Hormuz, oil prices quickly fell back to this level.
• Global GDP Forecast2.5% in 2026, 2.7% in 2027The report says forecasts for both years are unchanged, though internal country forecasts have seen significant revisions.
• Base Case Oil Price Assumptionan average of around USD75/b by 2H 2027Even with falling oil prices, inflation forecasts for 2026 and 2027 were still revised upward, mainly due to emerging markets.
• Adverse Scenario Oil PriceUSD140-150/bIf Hormuz only partially reopens and the oil market remains short, oil prices could gradually rise over the next six months.
• Strait Traffic Levelaround 10-20% of pre-conflict levels in MayIf it recovers to around 50%, there could still be a supply gap of about 5.5mbd in the short term.
• China Crude Oil Importsnormally around 11.5mb/d, 4.5mb/d below normal levels in MayThe report believes China will ultimately need to return to the global market and rebuild inventories.
• Additional US Crude Exportsabout 134m barrelsAs of the week ending June 9, the additional crude exported by the US versus pre-conflict levels mainly came from SPR releases and commercial inventories.
• Energy Contribution to InflationThailand +3.8 percentage points, Philippines +2.1 percentage points, and all three major US and eurozone economies above +1 percentage pointAs of May, compared with February data, energy prices had significantly pushed up headline inflation.
• Food Price Lagtypically lags energy prices by 6-9 monthsEl Niño may continue to push up food inflation in 2H 2026 through 2027.

Impact & implications

From an investment perspective, the global macro environment is shifting from a single energy shock to multiple concurrent headwinds: falling oil prices support risk assets and growth expectations, but inventory rebuilding, food inflation, and AI costs may limit how quickly central banks can pivot to easing. The US remains relatively advantaged due to energy, tech-related wealth effects, and growth resilience, and the USD may continue to find support; Asia’s electronics export chain is supported by AI, but some Asian economies are also more vulnerable to food, energy, and FX pressures.

Risks

• A final agreement between the US and Iran fails to materialize, preventing a sustainable full reopening of the Strait of Hormuz.
• Oil prices rise again to USD140-150/b under a partial reopening scenario, leading to stronger demand destruction and recession risk.
• Food prices rise with a lag due to El Niño, diesel, fertilizer, and transportation costs, pushing up inflation from 2H 2026 into 2027.
• Transmission from corporate input costs to output prices strengthens, triggering second-round inflation effects.
• AI buildout raises the cost of electricity, copper, chips, and components, with short-term demand-side inflation effects arriving faster than productivity gains.
• A stronger dollar and FX pressure force some emerging-market central banks to tighten further.

What to watch

• Actual traffic volume through the Strait of Hormuz, restoration of insurance, mine-clearing progress, vessel redeployment, and the pace of Gulf oilfield production recovery.
• Progress in US-Iran negotiations on the nuclear program, sanctions, and final arrangements.
• Whether Brent stabilizes around USD80/b, or moves back toward the adverse scenario of USD140-150/b.
• The recovery of China’s crude oil imports and the pace of global inventory rebuilding.
• Food inflation in 2H 2026, El Niño weather effects, and changes in agricultural output.
• AI capital spending, electronics exports, power bottlenecks, and component price trends.
• Policy responses by the Fed, ECB, BoE, and Asian and Latin American central banks to inflation and FX pressures.