The global economy is confronting a difficult combination of shocks: an escalating Middle East conflict is disrupting energy markets just as investors are questioning whether the artificial-intelligence investment boom can generate sufficient returns. The result is not yet a global recession, but a more inflationary and financially fragile environment in which governments and central banks have fewer easy choices.

Oil prices rose from about $90 a barrel at the end of August to $109 by October 19, while Brent crude later moved above $116, according to KBC and the Rio Times. Natural-gas prices in Europe also climbed from €70 to €88 per megawatt-hour as reserves remained relatively low and colder weather increased demand.

Why energy matters again

The immediate economic mechanism is familiar. Higher fuel costs raise transport and production expenses, squeeze household purchasing power and eventually feed into food prices. The disruption is especially significant because attacks and countermeasures are affecting tanker traffic through the Strait of Hormuz, one of the world’s critical energy routes. European energy inflation reached 18.8% in September, up from 14.3% the previous month, according to Le Monde.

The shock is arriving after several years of supply-chain stress, trade restrictions and geopolitical rivalry. Energy-importing economies can cushion some of the impact through strategic reserves, subsidies or alternative suppliers, but each response has costs. Subsidies protect consumers while worsening public finances; reserve releases offer temporary relief; and switching suppliers can mean paying a premium for liquefied natural gas or longer shipping routes.

“Major risks remain and include a slowdown in the AI build-out, slower productivity growth, a resumption of the trade war and a more severe energy shock,” KBC’s October outlook said.

Central banks face a policy trap

Energy inflation complicates the task of central banks because it can raise prices without immediately creating stronger underlying demand. Tightening interest rates may restrain second-round effects, such as wage demands and broad price increases, but it cannot produce more oil or reopen a shipping lane. Keeping policy tight for too long, meanwhile, risks weakening investment and employment.

US inflation rose from 3.4% to 3.7% year-on-year in September, while the US 10-year Treasury yield reached about 5%, according to KBC and the Rio Times. The European Central Bank and Federal Reserve have pushed back against expectations of immediate rate increases, but persistent energy pressure could make eventual easing slower and more conditional.

There is a disagreement over how severe the danger will become. Optimists point to the global economy’s resilience: the International Monetary Fund projects 3.1% growth in 2026, despite wars and trade disruptions, although that is below 3.4% growth last year. They argue that diversified energy supplies, flexible labour markets and public investment can prevent a temporary shock from becoming a systemic crisis.

The more pessimistic view is that repeated shocks are exhausting governments’ capacity to respond. IMF Managing Director Kristalina Georgieva warned that wars, commodity disruptions and other risks were eroding policy space, according to The Daily Star. Poorer economies face the greatest exposure because energy and food consume a larger share of household income and public borrowing is more expensive.

The AI boom adds a second fault line

At the same time, investors are reassessing the financing behind AI data centres and cloud infrastructure. Credit-default-swap prices and yields on AI-related bonds have risen as markets question whether future revenue will cover the enormous capital expenditure, according to Deloitte. Gartner has warned that 80% of “neocloud” providers could cease operating independently by 2030 if investment continues to outpace returns.

This does not mean AI investment is necessarily a bubble. Supporters argue that the technology is raising productivity, attracting capital and creating demand for chips, power and communications infrastructure. An October survey of 94 economists cited by the Financial Times suggested that AI’s benefits could extend beyond the United States and China.

But concentrated investment creates financial vulnerability. If expected AI revenues disappoint, highly leveraged data-centre projects could be delayed, weakening technology suppliers and lenders. If investment remains strong, it will intensify competition for electricity and potentially keep energy prices elevated. The energy shock and AI boom therefore pull in opposite directions: one raises costs, while the other depends on abundant, affordable power.

What comes next

The next phase will depend chiefly on the duration of the conflict and the reliability of energy flows through the Gulf. A rapid de-escalation could ease oil prices and restore some confidence. Prolonged disruption would push governments toward broader subsidies, emergency supply agreements and possibly restrictions on energy exports.

Investors will also watch whether AI companies convert spending into recurring cash flow rather than headline valuations. For policymakers, the central challenge is to protect vulnerable households without locking in inefficient subsidies, preserve investment without encouraging excessive leverage and strengthen supply chains without accelerating a costly retreat from global trade.

The global economy has so far absorbed the shocks. The question is whether it can do so again if war, energy scarcity and an AI-led financial correction arrive together.

Sources: KBC Economic Perspectives; The Daily Star; Deloitte; Financial Times; Le Monde.