The fragile assumption that the global economy was heading towards lower inflation and cheaper financing conditions has been disrupted by a new wave of energy market instability. Renewed tensions in the Persian Gulf have pushed oil, gas and electricity prices higher at a time when central banks were beginning to consider monetary easing. The latest shock has once again highlighted the close connection between energy security, inflation and investment costs.
Global economic growth is now expected to slow from 2.9% in 2025 to around 2.5% in 2026, while developing economies could experience a more significant slowdown, with growth declining from 4.4% to approximately 3.6%. The impact is uneven. Advanced economies generally have stronger currencies, larger strategic reserves and greater fiscal capacity to protect households and businesses. Energy-importing developing countries, however, face greater pressure through weaker currencies, widening trade deficits, reduced subsidies and higher public borrowing.
Oil prices remain the fastest transmission channel of the energy shock. Higher crude costs quickly affect road transport, aviation, agriculture, construction and global logistics. Natural gas creates a different but potentially deeper challenge, as it directly influences electricity generation and industrial sectors such as fertilisers, chemicals, metals, ceramics, glass and food processing. When gas and electricity prices rise simultaneously, companies face increasing production costs while also dealing with tighter working capital conditions.
The broader economic impact is increasingly driven by secondary effects rather than the initial commodity price increase. Higher natural gas prices raise fertiliser costs, which eventually contribute to higher food prices. Rising diesel prices increase costs across agricultural supply chains and industrial logistics. Energy-intensive companies must either transfer these costs to consumers or accept lower profit margins. At the household level, higher energy bills reduce spending on non-essential goods and services, weakening overall demand.
The renewed energy inflation is also complicating the outlook for interest rates. The European Central Bank has maintained its key borrowing rates but has warned that persistent inflationary pressures could influence future decisions. The US Federal Reserve has similarly maintained a cautious approach, prioritising price stability despite expectations for monetary easing. As a result, businesses and investors are facing a higher-for-longer financing environment, affecting infrastructure, manufacturing, real estate and clean energy projects.
The situation creates a difficult policy paradox. Governments need to accelerate investment in electricity grids, energy storage, LNG infrastructure, interconnections, domestic generation and industrial efficiency, but the energy shock itself is making those investments more expensive. Projects with long development timelines and delayed returns are particularly vulnerable, as higher interest rates can reduce investment attractiveness and limit access to financing.
Southeast Europe is among the regions most exposed to these pressures. Many countries in the region rely heavily on imported oil and remain dependent on imported gas, electricity and refined fuels. Compared with Western Europe, their energy markets are smaller, infrastructure connections are weaker and government budgets have less room for large-scale consumer protection measures. As a result, energy price volatility quickly affects inflation, trade balances, business competitiveness and financial stability.
The investment landscape is also changing. The key distinction is no longer simply between fossil fuels and renewable energy. Investors are increasingly prioritising assets that improve energy system resilience and security. Flexible generation, battery storage, pumped hydro, stronger electricity networks, efficient industrial facilities and diversified energy supply routes are gaining strategic importance.
Energy security is becoming a direct factor in determining the cost of capital. Future investments will increasingly be judged not only by their ability to produce energy, but also by their capacity to make economies more stable, competitive and resilient against future shocks.
