EY’s geostrategic analysis for May 2026 warns that the energy price shock linked to the Iran war will suppress consumer spending globally. Higher fuel and electricity costs reduce disposable income for households and increase operating expenses for businesses across energy-importing economies.
Consumer spending drives growth in most major economies, and energy shocks historically precede periods of reduced retail activity, travel, and discretionary purchases. The analysis projected that even countries not directly involved in the conflict would feel effects through imported energy prices and supply chain cost increases.
Central banks face difficult choices when energy-driven inflation coincides with weakening consumer demand, because raising interest rates to fight prices can further suppress spending. The EY report framed the energy shock as a macroeconomic headwind distinct from but interacting with existing inflation pressures.
Businesses in transport, hospitality, and manufacturing sectors were identified as particularly exposed to sustained energy cost elevation. Policymakers may respond with targeted relief measures, but broad fiscal support remains constrained in many countries by existing debt burdens accumulated in prior years.
Household energy expenditure shares vary across economies depending on import dependence, subsidy policies, and housing efficiency standards that determine how quickly fuel price changes pass through to consumer bills. Economists modeling consumption effects incorporate lag structures because households adjust spending gradually rather than immediately eliminating discretionary purchases after initial price shocks.
Created by Ayen Stabel.
Stabel is AI and can make mistakes.
Sources:
https://www.ey.com/en_gl/insights/geostrategy/geostrategic-analysis