Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Individuals & Families
    9. Insurance Companies
    10. Investment Managers
    11. Nonprofits
    12. Pension Funds
    13. Sovereign Entities
  1. Contact Us
  2. Search
  3. Client Login
MarketScape · 10.31.23

Why There’s Little Cushion to Absorb an Oil Shock

Beyond the human tragedy unfolding in Israel, we acknowledge the risk of escalation in the region and what it could mean for oil prices. Chief Investment Strategist for EMEA and APAC Wouter Sturkenboom, CFA, analyzes why the potential spread of war could strain an already tight oil market and damage a vulnerable global economy.

  • Economic Insights & Trends
  • Market & Investment Trends
  • Politics
  • Markets & Economy
Wouter Sturkenboom, CFA
Chief Investment Strategist – EMEA and APAC

Key Points

What it is

We examine the potential impact to the global economy if the war in Israel and Gaza escalates to a broader Middle East war.

Why it matters

Rising interest rates and slowing growth have produced a fragile global economy and heightened risks for investors.

Where it's going

In our tactical portfolio positioning, we are overweight natural resources and underweight global equities.

Beyond human tragedy unfolding in Israel, we acknowledge the risk of escalation in the region and what it could mean for oil prices. Escalation, in particular involving Iran, could disrupt oil supplies in an already tight global market. We see this more as a risk case than a base case for a tactical asset allocation.


But if the war significantly cuts off oil supply, we worry that a potential price shock could degrade the already fragile global economy and prolong equity market volatility. Let's take a closer look.


The global oil supply has become very tight. Oil companies have cut capital investment and exploration over the past 10 years. And the US has drawn down the strategic petroleum reserve from 650 to 350 million barrels in just over three years. Nearly all excess oil production capacity sits in Saudi Arabia, United Arab Emirates, Iraq, and Kuwait.


While there's potential for incrementally more production from countries such as Guyana and Brazil, at the moment, oil producers outside the Middle East are tapped out. Further, Qatar is among big three exporters of natural gas globally, potentially, further straining an important source of energy if the war escalates.


About 20% of the world's oil and liquefied natural gas flows through the Strait of Hormuz along the coast of Iran making it a potential choke hold for oil if the Strait is blocked because of war.


However, we see few signs of concern to the market over how much disruption the war could cause. only briefly after the attack by Hamas. Instead, all eyes have been on rising long-term yields, with the 10-year treasury yield hitting 5% this month.


Rising interest rates and tighter financial conditions in the Us, Europe, and China have added to investor concern that the global economic outlook is deteriorating. As a result, the equity market decline that started two months ago, has picked up speed with global equities falling roughly 10% from their highs. We think there's a little cushion for the global economy or equities to withstand an energy supply shock.


In our global policy model that guides in our multi-asset portfolios, we felt an overweight position to natural resources because of the lack of investment in new production and attractive valuations. The risks related to the war further support this positioning. With equities, we are underweight globally based on our outlook of a slowdown in the global economy, which an oil shock could accelerate.

Main Point

A Global Risk for Investors

Rising interest rates and tighter financial conditions in the U.S., Europe, and China have added to investor concern that the global economic outlook is deteriorating. This leaves the global economy with little protection against a spike in oil prices, creating risk for investors.


  • Read Now
Teal marble rolling ahead of white blocks

Wouter Sturkenboom

Chief Investment Strategist – EMEA and APAC

Wouter Sturkenboom, CFA, CAIA, is chief investment strategist for EMEA and APAC at Northern Trust. He is also a member of the Interest Rate Strategy Committee and Investment Policy Committee.

Read Bio

Contact Us

Interested in learning more about our expertise and how we can help? 


Northern Trust Asset Management (NTAM) is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.


Issued in the United Kingdom by Northern Trust Global Investments Limited, issued in the European Economic Association (“EEA”) by Northern Trust Fund Managers (Ireland) Limited, issued in Australia by Northern Trust Asset Management (Australia) Limited (ACN 648 476 019) which holds an Australian Financial Services Licence (License Number: 529895) and is regulated by the Australian Securities and Investments Commission (ASIC), and issued in Hong Kong by The Northern Trust Company of Hong Kong Limited which is regulated by the Hong Kong Securities and Futures Commission.


For Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. This document may not be edited, altered, revised, paraphrased, or otherwise modified without the prior written permission of NTAM. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. NTAM may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.


This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.


All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTAM’s efforts to monitor and manage risk but does not imply low risk.


Past performance is not a guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by NTAM. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Net performance returns are reduced by investment management fees and other expenses relating to the management of the account. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. For U.S. NTI prospects or clients, please refer to Part 2a of the Form ADV or consult an NTI representative for additional information on fees.


Forward-looking statements and assumptions are NTAM’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.


Not FDIC insured | May lose value | No bank guarantee