Introduction#
The global economy has shown surprising resilience following the closure of the Strait of Hormuz, a vital oil shipping route. However, BCA Research warns that the risk of a recession is increasing, especially if the closure continues into June.
Timing of Oil Shocks#
One key reason for the current stability is timing. Historically, oil shocks do not immediately impact economic growth; instead, their effects are often felt about a year later. This lag means that the full consequences of the current situation may not be realized just yet.
Reduced Oil Dependency#
Another factor is that the global economy now uses significantly less oil per unit of GDP compared to previous decades. This means that while oil prices can affect the economy, the overall impact is less severe than it once was. However, BCA cautions that increased interdependence in supply chains could counterbalance this benefit.
Inflation Expectations#
Long-term inflation expectations are another buffer. With inflation expectations remaining stable, central banks are under less pressure to raise interest rates aggressively, which can help maintain economic growth.
Fiscal Support#
Fiscal policies are also playing a role in stabilizing the economy. The provisions of the One Big Beautiful Bill Act, along with U.S. Treasury tariff refunds, are providing additional support.
Precautionary Buying#
Companies are engaging in precautionary buying, reminiscent of behaviors seen during the pandemic. This proactive approach helps to mitigate potential supply disruptions.
AI Investment#
The ongoing boom in artificial intelligence (AI) is another critical growth driver. Investment in IT hardware and software reached a record 4.9% of GDP in the first quarter of 2026, showcasing the sector's importance in the current economic landscape.
Oil Market Signals#
Lastly, the oil markets are currently in a state known as backwardation, where current prices are higher than future prices. This suggests that investors believe the current oil shock will be temporary, which can help stabilize market expectations.
BCA Research remains neutral on global equities but warns that it may shift to a more defensive stance if the situation in the Strait of Hormuz does not improve.