Roughly five years ago, inflation around the globe began surging as a result of the pandemic, and policymakers at the Federal Reserve wrongly believed that it would prove transitory.
Now, with the closure of the Strait of Hormuz and the ensuing surge in energy prices, policymakers at central banks across the globe face a new challenge: how to avoid repeating the same mistake. The 2026 Iran war has created “the largest geopolitical oil supply disruption in history,” according to research from the Federal Reserve Bank of Dallas, between two and three times larger than the 1973 Arab-Israeli War or the 1990 Gulf War. Hundreds of oil tankers are effectively stranded in the Persian Gulf. Countries like Iraq, Kuwait and Saudi Arabia have been forced to curtail production because oil cannot be stored or exported. The baseline disruption removes close to 20% of global oil supplies from the market, driving WTI crude from around $60 pre-war to roughly $90 in March and peaking near $110. Elevated fuel and transportation costs raise production expenses across a wide range of sectors. While firms may absorb temporary cost shocks, persistent increases are more likely to change pricing behavior, with companies eventually passing costs through to consumers.[1]
Source: LSEG Datastream
That dynamic exposes central banks to a new credibility test just as memories of their last error are still fresh. If they downplay this energy shock as another temporary blip and inflation proves more persistent, they risk further eroding public confidence in their ability to deliver price stability. Yet reacting too aggressively by raising rates sharply into an energy-driven cost shock, risks compounding the pain for households and firms already squeezed by higher gasoline, heating and other commodity prices. In other words, the war forces central banks to balance the need to keep inflation expectations anchored against the danger of inflicting unnecessary damage on growth and employment.
…PERSISTENT INCREASES ARE MORE LIKELY TO CHANGE PRICING BEHAVIOR, WITH COMPANIES EVENTUALLY PASSING COSTS THROUGH TO CONSUMERS.
5 | ADMISI - The Ghost In The Machine | Q2 Edition 2026
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