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The Credit Market Lens: An Oil Shock (Mostly) Like No Other

This year’s energy price shock isn’t exactly following the historical playbook, with markets and economies absorbing much of the impact – though clear risks remain.
The Credit Market Lens: An Oil Shock (Mostly) Like No Other
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A full seven months into the conflict with Iran that catalyzed a global energy supply shock, energy markets remain the clearest source of uncertainty for risk assets. As shown in Figure 1, the six-month WTI contract is roughly 25% higher than it was at the end of February, following a trajectory broadly consistent with previous geopolitical oil shocks.

Figure 1: The oil market is behaving similarly to past supply shocks

Line chart comparing the cumulative percentage change in the six-month WTI futures contract across four oil-shock episodes. The Iran conflict series rises about 27% by month seven; the historical series also rise, but follow different paths.

Source: Bloomberg, Haver Analytics, and PIMCO as of 30 September 2026. Data shown are for the six-month West Texas Intermediate (WTI) crude oil futures contract, often abbreviated CL6.

However, the performance of other asset classes has not followed the standard playbook of past supply shocks. Figure 2 shows that investment grade (IG) credit spreads remain effectively flat versus February levels. Figure 3 shows how U.S. Treasury yields have moved markedly higher in 2026, more closely tracking the 2022 Russia-Ukraine pattern than the one observed during the first Gulf War in 1991. Higher energy prices have led many investors to expect more central bank rate hikes – a key force behind higher real yields. For credit investors specifically, elevated Treasury yields are likely helping support demand via higher all-in yields despite tight spread levels.

Figure 2: U.S. investment grade credit spreads remain effectively flat versus levels prior to the Iran conflict

Line chart comparing changes in USD investment-grade option-adjusted spreads across the same four episodes. The Iran conflict series remains close to zero through month seven, ending about 4 basis points below its starting level, while the historical series rise substantially.

Source: Bloomberg, Haver Analytics, and PIMCO as of 30 September 2026. Investment grade (IG) bonds are represented by the Bloomberg US Corporate Total Return USD Index.

Figure 3: U.S. Treasury yields have been rising since the start of the Iran conflict

Line chart comparing changes in the U.S. 10-year Treasury yield across the four episodes. The Iran conflict series rises about 132 basis points by month seven, broadly following the upward direction of the Russia-Ukraine series; the First Gulf War and OPEC-cuts series eventually fall below their starting levels.
Source: Bloomberg, Haver Analytics, and PIMCO as of 30 September 2026

Although the move in rates during the onset of the Russia-Ukraine conflict in 2022 may seem like a useful prism through which to frame the current conflict, conventional macroeconomic thinking would suggest otherwise. Historically, energy supply shocks have tended to morph from inflation scares into growth scares, with investors ultimately seeking perceived safety and pushing yields lower (again, Figure 3).

The reason 2022 is an exception is its unique starting point. During the 2020 pandemic, policy rates in most countries were effectively cut to zero, central banks embarked on large-scale asset purchases that pushed down long-dated yields to multi-decade lows, and large fiscal packages to support aggregate demand ultimately met constrained supply chains and led to spiking inflation.

None of these conditions were the same at the outset of the current Iran conflict.

Figure 4: The oil intensity of the U.S. economy has been drifting structurally lower since the 1980s

Line chart of U.S. oil intensity from 1960 through 2024, measured in barrels per $1,000 of GDP in 2017-chained dollars. Oil intensity fluctuates around one barrel in the 1960s and 1970s, then declines to about 0.32 barrels in 2024.

Source: U.S. Energy Information Administration (EIA), Haver Analytics, and PIMCO. Annual data are published through 2024 and were accessed on 30 September 2026. Oil intensity is a measure of the quantity of oil consumption corresponding to GDP.

For context, during the first Gulf War in 1991, the U.S. economy needed to use roughly twice the amount of oil compared with today for a commensurate level of GDP.

One way to conceptualize this is that over the past 50 years, the U.S. has transitioned from a manufacturing-based economy to a services-based one, which is mechanically less sensitive to oil as an input.

That isn’t to say the U.S. is impervious to energy price spikes. Rather, it implies that it would likely take a larger and more sustained energy shock for growth to deteriorate the way it did during episodes such as the first Gulf War.

The second factor is the AI investment cycle. Over the past several months, capex spending expectations linked to the AI ecosystem have consistently increased. AI hyperscaler capex alone will likely surpass $1 trillion in 2027, according to consensus analyst estimates compiled by Bloomberg.

This level of spending has helped stabilize growth expectations and also helps support risk appetite while potentially limiting the spillover from higher energy prices into broader risk assets.

Figure 5: Active U.S. oil rig counts have increased slightly in 2026 year to date

Dual-axis line chart showing the price of a 12-month WTI contract and U.S. oil rigs from 2010 through 2026. Oil prices vary sharply, while the rig-count index, set to 100 on July 27, 2018, rises less strongly after 2020 than during the earlier period shown.
Source: Baker Hughes, Haver Analytics, Bloomberg, and PIMCO as of 25 September 2026

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