Oil shock is quietly morphing into a global growth crisis, warns Stephen Innes

The Middle East conflict has stopped being just an oil story. It is rapidly becoming a global growth story — and markets are only beginning to price in the full damage, according to Stephen Innes, Managing Partner at SPI Asset Management, one of Asia's most closely watched macro strategists.

"What we initially saw was an inflation shock getting driven through the system," Innes told ET Now. "But with yields dropping, that energy shock is actually quickly morphing into a growth shock. We are moving into an inflation environment and also a growth hit environment — which is stagflationary. Those are generally quite toxic for global equities."

The yield curve is sending a warning

Innes pointed to the behaviour of the 10-year US Treasury bond as the clearest signal of what lies ahead. A mild but telling bull flattening in the yield curve — where long-term yields fall even as short-term rates stay elevated — is historically associated with slowing growth expectations. For equity investors, that combination of rising inflation and weakening growth is one of the most difficult environments to navigate.


Until recently, most major central banks had been positioning for interest rate cuts, a move that typically supports both economic growth and stock market valuations. That calculus has now changed. Higher oil prices are forcing policymakers to reconsider — and in some cases reverse — their easing plans.

Asian central banks caught in a trap

The pressure is particularly acute across Asia, where currencies have been weakening against the US dollar. Since oil is priced in dollars, a weaker local currency means higher import costs — amplifying the inflationary effect of rising crude prices even further.

"Central banks are really between a rock and a hard place right now," Innes said. "Most of them want to be easing to keep the economy going, but they may have to hike interest rates just to defend the currency. If we get global interest rates moving higher, we are headed for a global recession — and that is going to do nobody good."

Japan was cited as a specific flashpoint, with the yen under sustained pressure and the Bank of Japan facing increasingly difficult choices between currency defence and domestic growth support.

Oil at $90–$100: The new normal?

On crude prices, Innes offered a notably hawkish outlook. While he had previously expected Brent to trade in the $80–$90 range, escalating infrastructure damage in the region — combined with the entry of Houthi forces into the conflict — has pushed his forecast higher.

"We might be looking at $90 to $100 Brent prices continuing through the rest of the year," he said. "That is a real worry for central bankers — and for consumers — because it gets translated directly into the pump. It is effectively a tax on consumers globally."

Where Innes is looking for opportunity

Despite the grim macro backdrop, Innes identified one sector he believes will emerge stronger from the energy shock: electric vehicles, particularly in China and India.

"The electronification market, the EV markets in China — these are probably great points to put in some hedges," he said. "An energy shock is going to encourage more people to go out and buy electric cars. China has very well-priced electrical vehicles. India is manufacturing them too. It is always cheaper to get in early."

He stopped short of recommending aggressive positioning right now, but was clear that the long-term structural case for EVs is being accelerated by the current crisis — making early entry attractive for investors with a medium-term horizon.

The overarching message from Innes is one of caution. With oil prices likely to stay elevated, central banks facing impossible trade-offs, and yield curves flashing stagflation warnings, the global investment environment has shifted materially. Safe havens are offering less protection than usual. The smartest plays, in his view, are the ones that benefit structurally from the very crisis causing the pain.