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
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
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
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.
Why has this episode been different?
We see two main factors contributing to the resilience of the U.S. economy (thus far) in the face of this year’s energy shock. The first is the oil intensity of the economy. Figure 4 shows that since the 1980s, there has been a structural and persistent decline in the number of barrels of oil consumed for a given level of real U.S. GDP.
Figure 4: The oil intensity of the U.S. economy has been drifting structurally lower since the 1980s
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.
Early signs suggest supply-side pressure may be easing somewhat
We also see some encouraging signs that oil flows from the Persian Gulf are starting to approach 2025 averages. According to commodities analysts, news reports, and data from satellite tracking services, exports in recent weeks may have reached 80%–90% of pre-Iran-conflict levels. That’s a striking estimate given the disruptions through the Straits of Hormuz and Bab al-Mandab. That said, inventories are still under pressure and risks to supply normalization remain elevated.
Moreover, increasing rig counts suggest U.S. oil production may be ramping up, albeit gradually: Data compiled by Baker Hughes shows that active U.S. rig counts have increased 10% so far this year and stand at around 600, similar to levels at the start of 2025 (see Figure 5). However, given the history of booms and busts in U.S. energy production, U.S.-based exploration and production (E&P) firms appear to be expanding more cautiously this time – they seem less reactive to the price of oil than in the years prior to the 2020 pandemic.
Figure 5: Active U.S. oil rig counts have increased slightly in 2026 year to date
Risks to monitor
Despite the economic resilience so far, the encouraging signs in Gulf oil transits, and our baseline forecast that energy prices could gradually decline in line with what’s priced into futures markets, the path forward has clear risks. Bottlenecks in refining and product markets remain real, and the transmission to the real economy occurs through diesel, jet fuel, and gasoline prices rather than crude alone. The near-normalization in crude flows has not eliminated the risk that higher energy costs weigh on consumer spending and broader economic activity.
More importantly, the geopolitical situation remains highly fluid. A renewed disruption to crude or refined product markets could push the growth-inflation mix in an unfriendly direction, leaving policymakers confronting slower growth alongside renewed inflation pressures.
Simply put, if the disruption to the oil and refined product supply chain persists, then growth expectations and risk assets will likely be increasingly exposed to the shock; this adjustment may simply take longer than in previous cycles. The current divergence from historical cross-asset relationships may not persist indefinitely.
Michael Puempel and Gabriel Cazaubieilh contributed to this report.
