Chatham House: The Hormuz Inflation Shock Is Only Just Beginning

Source: Chatham House — May 14, 2026
Author: Michael Klein (Senior Research Fellow, Global Economy and Finance Programme)

April 2026 Inflation Data¶

• US CPI rose 0.6% in a single month — highest since May 2023
• "There will be much more of this to come"

Core Argument¶

Energy as the Inflation Driver¶

"The price of energy is a central variable in shaping overall inflation. And since the US-Israeli war on Iran and the subsequent closure of the Strait of Hormuz, energy prices have soared and show no signs of returning to pre-war levels."

• Brent crude at ~$100/bbl vs $69 average in 2025 (lowest since 2020)
• Under almost any scenario, global energy prices will remain way higher than last year

Historical Pattern¶

• 1973 and 1979 oil shocks pushed US inflation toward 15%
• Paul Volcker raised rates to 20% to tame it
• Global economy is less energy-intensive now, but energy's role in shaping inflation "seems undiminished"
• Rising energy inflation drove the 2016-2018 and 2021-2022 inflation surges
• The 2023-2025 inflation moderation was "inconceivable without a sustained collapse in global energy price inflation"

The Demand Question¶

Chatham House addresses the counter-argument that demand conditions (not supply) determine energy prices:
- Post-COVID inflation may have been demand-driven (loose monetary/fiscal policy)
- But the 2022-2025 inflation decline happened despite strong global demand (3.3% growth in 2024-2025)
- Energy inflation has been the primary driver of broader inflation — not demand

Second-Round Effects¶

Central bankers' main concern:
- Rate hikes can't fix supply-side energy inflation
- But they must prevent "second-round effects" — energy price increases feeding into wage demands, services prices, inflation expectations
- South Africa's Kganyago: cited as an example of central banker clarity on this challenge

IEA "Red Zone" Warning¶

Speaking at Chatham House, Dr Fatih Birol (IEA Executive Director) warned:
- Hormuz closures and rising summer demand could push oil markets into a "red zone" by July/August

Significance¶

Chatham House provides the macro-inflation framework that complements the supply-side analysis from banks and oil companies. The key insight: the inflation shock is "only just beginning" — April data is just the first wave.

The central banker bind is crucial: they can't fix supply-side inflation with rate hikes, but they must prevent second-round effects. This creates a policy dilemma that could amplify the economic damage of the Hormuz crisis.

The Birol "red zone" warning (July/August) aligns with JPMorgan's operational stress timeline (June) and Morgan Stanley's buffer exhaustion window (late June/July).