BMO Equity Research IN Tune Middle East Conflict: In Search of Economic and Market Stability
Mar 17, 2026
Randy Ollenberger, Oil and Gas Analyst at BMO, breaks down supply disruptions, tanker flows and refined product bottlenecks. Doug Porter, Chief Economist at BMO, outlines how higher oil feeds inflation, trims growth and pressures central bank decisions. They discuss whether markets see a temporary shock or lasting geopolitical risk, impacts on LNG and Europe, and why inventories and product spreads matter for volatility.
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Largest Oil Shock Since 1973
- The current Middle East conflict is the largest oil shock since 1973 and has severely disrupted flows through the Strait of Hormuz.
- Tanker traffic dropped from ~60 daily to 1–5, creating a physical supply gap that will show up as inventories run down over coming weeks.
Oil Moves Have Direct Macro Effects
- Every 10% rise in oil prices typically raises North American headline inflation by ~0.2 percentage points and reduces GDP by ~0.1 percentage point.
- BMO raised near-term inflation forecasts roughly 0.5 percentage points as oil moved from a $75 to $95 level.
Central Banks Can Likely Look Through Shock
- A supply shock raises inflation and lowers growth, posing a dilemma for central banks; with core inflation milder now, central banks can likely 'look through' the shock.
- Bond yields and a stronger US dollar have tightened financial conditions, doing some monetary work for central banks.