The fragile assumption that the world economy was moving towards lower inflation and cheaper capital has been disrupted by another energy shock. Renewed instability around the Persian Gulf has pushed oil, gas and electricity costs higher just as central banks had begun to contemplate monetary easing, reviving the relationship between physical energy security, consumer prices and the cost of investment.
Global economic growth is now expected to slow from 2.9% in 2025 to about 2.5% in 2026, while developing economies face a sharper deceleration from 4.4% to approximately 3.6%. The difference matters. Advanced economies generally have deeper strategic reserves, stronger currencies and more fiscal capacity to protect consumers. Energy-importing developing countries must absorb the shock through weaker exchange rates, deteriorating trade balances, reduced subsidies or higher public borrowing.
Oil remains the most visible channel. Higher crude prices move rapidly into road transport, aviation, agricultural machinery, construction equipment and international freight. Gas works differently but can be even more damaging to industrial competitiveness. It affects electricity generation, fertiliser production, chemicals, metals, ceramics, glass and food processing. When gas and electricity rise together, companies face simultaneous pressure on production costs and working capital.
The secondary effects are becoming more important than the initial commodity move. Expensive natural gas raises fertiliser costs, which subsequently feed into food prices. Higher diesel costs affect every stage of agricultural and industrial logistics. Electricity-intensive companies either pass those increases to customers or accept lower margins. Households respond by cutting discretionary expenditure, weakening consumer demand beyond the energy sector itself.
This transmission mechanism complicates the interest-rate outlook. The European Central Bank has kept its principal borrowing rate unchanged but has indicated that persistent energy inflation could force a renewed tightening. The US Federal Reserve also left rates unchanged at its late-July meeting, prioritising price stability over the market’s expectations for monetary easing. The practical result is a higher-for-longer funding environment for infrastructure, manufacturing, property and clean-energy investment.
The paradox is becoming harder to ignore. Governments need to accelerate investment in grids, storage, LNG terminals, interconnections, domestic generation and industrial efficiency, yet the energy shock itself is increasing the cost of financing those assets. Projects with long development periods and back-ended revenues are particularly exposed because relatively small changes in the discount rate can reduce equity returns and debt capacity.
Southeast Europe sits near the centre of this vulnerability. Most regional economies import the majority of their oil and retain varying degrees of dependence on imported gas, electricity and refined fuels. Their domestic markets are smaller, their energy systems are less interconnected and their fiscal room for consumer support is narrower than in western Europe. Energy price volatility therefore appears quickly in inflation, current-account balances and corporate credit risk.
The emerging investment distinction is no longer simply between fossil fuels and renewable energy. Capital is beginning to differentiate between assets that merely add production and those that strengthen system resilience. Dispatchable generation, battery storage, pumped hydropower, efficient industrial plants, reinforced grids and diversified fuel routes are receiving a growing strategic premium. Energy security is being incorporated directly into the cost of capital.
