The Iran conflict has driven one of the biggest global shocks right now, with oil prices surging between March-May, easing into June, then spiking again. Sri Lanka has felt this directly, CBSL data shows the oil import bill grew nearly 94% YoY between March-June 2026.
Despite the shock, over the last half decade or so oil prices we think moved through two regimes. Initially prices crashed with Covid, then recovered as economic activity resumed and OPEC cut supply. But since late 2022, despite continued OPEC cuts, prices have trended down fairly consistently for three years. We attribute this structural shifts in China and the falling cost of renewables globally. Absent the war, we’d have expected prices to keep sliding across 2026 as well.
Then even in an escalated scenario like now, historical data shows a clear pattern - wartime spikes rarely stick. In the Russia-Ukraine war, prices returned close to pre-war trajectory within about six months. The Arab Spring saw similar dynamics, with roughly half of price gains given back within six months. Prices are typically driven first by panic, only later by actual production damage, which tends to be repaired swiftly and adjustments back to pre conflict normalcy occurs even with conflicts that goes on for years.
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