If oil stays above $100: what follows

Oil is already high, and inflation has followed

From the oil field to your budget, in five steps

The longer oil stays high, the further down this chain the effects travel.

1. WeeksFuel prices riseA barrel holds 42 US gallons (159 litres), so every $10 on a barrel adds about 24 US cents a gallon, or 6 cents a litre, to the cost of the crude in fuel, before taxes and margins.
2. MonthsInflation rises, directly then indirectlyEnergy bills push up inflation at once. Then transport, plastics, fertiliser and food follow as firms pass on costs. ECB staff estimate that a 10% rise in energy prices adds about 0.2 percentage points to euro area inflation directly over three years, and 0.4 to 1.5 points more through these indirect effects, depending on how global the shock is.
3. MonthsCentral banks decide whether to reactA one-off jump in fuel prices fades from inflation after a year. What central banks fear is "second-round effects": workers demanding higher pay and firms raising prices because they expect inflation to last. That fear is why the Bank of England, the Reserve Bank of Australia and Sweden's Riksbank raised rates in late October and early November.
4. QuartersGrowth slowsMoney spent on fuel is not spent on anything else, and higher rates add to the squeeze. The ECB estimates that a 10% rise in the real price of oil from a supply shock lowers euro area growth by about 0.2 to 0.3 percentage points in each of the first three years.
5. A year +Supply and demand respondHigh prices make new drilling profitable, and US shale producers can add supply within months. Consumers and firms use less. Over time this pulls prices down: the old saying is that the cure for high prices is high prices.

Brent crude

The main global benchmark price for oil, based on crude from the North Sea. It is quoted in US dollars per barrel. The US benchmark is called WTI (West Texas Intermediate).

Example: Brent settled at $116.72 a barrel on 23 October 2026, up about 76% in a year.

Supply shock

A sudden change in the supply of something important, such as oil, that moves prices without any change in demand. A negative supply shock raises prices and slows growth at the same time, which leaves central banks with a dilemma.

Example: The near-closure of the Strait of Hormuz in 2026 cut oil supplies to Asia and Europe.

Imported inflation

Inflation that comes from abroad: higher prices for imported goods and energy, or a weaker currency that makes every import more expensive.

Example: Japan buys oil in dollars. With the yen near 157 per dollar, each barrel costs more in yen than it did when the yen was stronger.

Risk premium

The extra price or return investors demand because something might go wrong, such as a supply cut, a default or a war. It is not published; it shows up when prices move on news that changes no physical flow.

Example: Brent crude fell 7.6% to $104.77 on 2 November 2026 after Iran signalled openness to peace talks, though no extra oil had arrived: traders said the risk premium was "seeping out".

Stagflation

High inflation and weak growth or rising unemployment at the same time. It is hard to treat, because raising rates to fight inflation also weakens the economy further.

Example: In the US, inflation reached 12.2% in November 1974 and unemployment 9.0% in May 1975, after the first oil shock.

Backwardation

When oil for delivery soon costs more than oil for delivery later, so the futures curve slopes down. It signals a shortage now: buyers pay extra to get barrels today, and nobody wants to store oil. The opposite, when later delivery costs more (to cover storage), is called contango.

Example: On 26 October 2026 the nearest Brent contract cost about $5 a barrel more than the next one, up from $3.69 a week earlier, even as the Brent price fell.

An oil shock moves money from importers to exporters

What happened in the 1970s

Oil quadrupled in 1973–74 and more than doubled again in 1979–80. Inflation reached double digits, growth stalled, and it took Paul Volcker's rate rises to break the cycle. The 1970s oil shocks and the Volcker squeeze tell the story, including what happened to shares, bonds and gold.

Where this is at work now

Recent stories, newest first.