Extreme oil price volatility is a greater threat to global trade than high prices alone, with a new analysis warning the full impact has yet to be felt.
Severe oil price volatility since the start of the U.S.-Iran conflict threatens to slash global trade growth by as much as 1.75 percentage points by the end of next year, according to a new report from the independent trade monitor Global Trade Alert.
"The worst of it may still be ahead of us," said Simon Evenett, founder of Global Trade Alert and a trade expert at the Swiss business school IMD. "The drag on global trade from sustained fuel price volatility can take up to 19 months to be fully felt."
Since the conflict began on Feb. 28, oil price volatility has surged nearly 60 percent. Brent crude, the global benchmark, has swung from approximately $70 a barrel to a peak of over $126 last week as negotiations to reopen the Strait of Hormuz stalled.
The findings challenge the World Trade Organization’s more optimistic forecast of 2.6 percent trade growth in 2027, suggesting that price instability itself—disrupting shipping contracts, inventories, and consumer confidence—is more damaging to trade than the absolute price level.
The key conclusion from the GTA analysis is that for global trade, instability in oil prices is far more destructive than the absolute price. "A world of expensive-but-stable oil prices is less damaging to trade than a world of volatile oil prices," the report states.
While sustained high prices increase costs for manufacturing-led economies like Japan and the Eurozone, they also boost revenues for commodity-exporting nations, creating a partial offset. Price volatility, however, introduces broader systemic friction. The report notes that sharp price swings force the renegotiation of shipping contracts, lead to the unplanned drawdown of inventories, and damage consumer confidence in major markets. These effects gradually ripple through trade data over several months.
GTA's baseline model, which assumes the current volatility track continues, projects a 1.75 percentage point reduction in global trade growth by the end of 2027. A less severe scenario, comparable to the energy crisis following the conflict in Ukraine, still implies a 1.1 percentage point drag.
Under the most severe scenario modeled by GTA, which mirrors the commodity price collapse of 2008, Africa and the Middle East would be the hardest-hit regions, with trade growth falling by more than eight percentage points.
China’s trade growth would see a negative impact of nearly three percentage points, roughly triple the effect on the United States. Japan and the Eurozone also face significant pressure on their trade growth. In contrast, emerging Asian economies and Latin America have not yet shown significant impacts in the model.
The price volatility reflects deep uncertainty surrounding the Strait of Hormuz, a chokepoint for nearly 20 percent of the world's daily oil and gas supply. Iran blocked the strait after the U.S. and Israel launched strikes on Feb. 28, and a U.S. counter-blockade of Iranian ports has kept tensions high.
"Further escalation and any attacks on energy infrastructure could force benchmarks to gain rapidly," said Janiv Shah, vice president of oil markets at Rystad Energy.
While the U.S. Navy has begun escorting some vessels through the strait, helping to ease immediate supply fears and causing prices to retreat slightly from their peaks, the situation remains fragile. Vandana Hari, founder of energy market analysis firm Vanda Insights, said oil prices have “nowhere to go but up” until a full reopening of the strait is in sight.
This article is for informational purposes only and does not constitute investment advice.
