Hormuz disruption raises inflation risk, recession odds, EY-Parthenon says

(WO) - Disruptions to oil flows through the Strait of Hormuz are expected to have a broader and more persistent impact on global energy markets and the macroeconomic outlook than a typical supply shock, according to EY-Parthenon Chief Economist Gregory Daco. 

Daco described the current situation as a “multidimensional disruption,” noting that risks extend beyond crude supply to include refining systems, LNG infrastructure and broader energy logistics—factors that could prolong inflationary pressure rather than trigger a short-lived price spike.

As a result, the firm has raised its near-term oil price outlook, forecasting Brent crude to average $88/bbl in the second quarter—about $20 above pre-conflict expectations—before easing to $75 in the third quarter and $72 by year-end.

The revised outlook reflects tightening supply conditions and ongoing uncertainty tied to the scale and duration of disruptions through Hormuz, a key artery for global crude and LNG flows.

EY-Parthenon has also increased its U.S. inflation forecast, projecting headline PCE inflation to reach 2.9% year-over-year by the fourth quarter, while lowering its 2026 GDP growth outlook to approximately 2.0%.

Downside risks are mounting, with the probability of a U.S. recession now estimated at 40%. Daco noted that a more prolonged or severe conflict—particularly one that sustains oil prices above $100/bbl—could further accelerate inflation and materially weaken growth.

While the U.S. remains relatively insulated compared to Europe and Asia, with potential upside from increased shale production, the overall economic impact is expected to be negative.

The report underscores how energy market disruptions tied to geopolitics are increasingly translating into broader economic headwinds, with implications for supply, pricing and investment across the upstream sector.