BNP Paribas analysts compared the Eurozone’s 2026 energy shock, linked to war in Iran, with the 2022 shock after the war in Ukraine. In 2026, oil prices are up 44% to date and gas prices are up 64%.
In 2022, oil prices rose by about 30% from 23 February to their peak in early June, and gas prices rose by about 210% from 23 February to their peak in late August. The analysts said the 2026 setting has weaker demand and fewer supply bottlenecks than in 2022.
Early Signs Point To Contained Pass Through
Early March 2026 data showed limited spread of price rises beyond energy. They noted an improvement in the manufacturing PMI in March 2026, with no rise in the “output price” component.
They also reported that household sentiment on personal finances worsened less than in March 2022. Central banks were described as more ready to respond quickly if energy costs push up inflation expectations and wages.
We are now facing an energy shock from the war in Iran, with oil up 44% and gas up 64% this year, but we should not assume this is a repeat of 2022. The economic backdrop is different now, as demand is weaker and supply constraints have eased significantly since the post-pandemic period. This suggests the inflationary impact might be more contained than the market currently fears.
The latest Eurozone inflation data for March 2026 supports this view, showing headline inflation rose to 3.5% but core inflation only edged up to 2.8%. This limited pass-through suggests we can consider trades that bet against a runaway, broad-based price spiral. Selling far out-of-the-money call options on inflation swaps could be a way to position for a less severe outcome than what we experienced back in 2022.
Positioning For Volatility And Rates
Central banks have also learned from the 2021-2023 inflation wave and are ready to react more quickly to any second-round effects. Recent comments from ECB officials have been hawkish but stress a data-dependent approach, unlike the emergency footing seen in mid-2022. Therefore, while short-term interest rate volatility is high, we can look at strategies that profit if the terminal rate for this cycle is priced lower than the peaks of the last one.
The uncertainty has pushed the VSTOXX volatility index up to 28, a high level but still well below the peaks of over 35 we saw in March 2022. This indicates nervousness rather than outright panic, presenting an opportunity to sell volatility at these elevated levels through option structures on the Euro Stoxx 50. We should, however, maintain some downside protection using puts, as the geopolitical situation remains fluid.
Given the weaker global demand outlook, the sharp rally in energy prices may struggle to extend much further. Data from the IEA released last week showed a downward revision in global oil demand for the second half of 2026. This makes outright long positions on oil futures risky; instead, we could use call spreads on Brent crude to profit from a plateauing of prices rather than betting on a continued surge.
