RISING uncertainty in global oil prices—rather than elevated prices alone—is emerging as a major factor shaping economic decisions and slowing growth, according to economists from the Asian Development Bank (ADB).
In a recent analysis, ADB Deputy Chief Economist Abdul Abiad and economist Irfan A. Qureshi said volatility in oil markets, driven by geopolitical tensions such as the ongoing conflict in the Strait of Hormuz, is making it harder for businesses and households to plan spending and investments.
While higher oil prices directly increase costs for transport, utilities, food, and production, the economists emphasized that uncertainty over future price movements can have a broader and more disruptive economic impact.
“Not knowing where prices will go next alters behavior,” the authors said, noting that firms tend to delay investments while households postpone major purchases amid unclear cost and income prospects.
The report highlighted a sharp spike in the Oil Price Uncertainty (OPU) index in February 2026, following renewed tensions in the Middle East. The index—based on the frequency of news coverage discussing oil price uncertainty—has reached its highest level in nearly 50 years, comparable to levels seen during the Iranian Revolution.
The surge reflects market concerns over possible supply disruptions, particularly the risk of a prolonged blockage in the Strait of Hormuz, a vital chokepoint that handles about a quarter of global seaborne oil trade.
According to the ADB economists, elevated oil price uncertainty has measurable economic effects. A significant spike in the OPU index can reduce global industrial production by around 0.35 percentage points, compounding the negative impact of already high oil prices.
They warned that prolonged uncertainty can weaken capital formation, disrupt production planning, and slow productivity growth. It may also increase global risk aversion, making borrowing more expensive and triggering capital outflows, particularly in economies with weaker financial fundamentals.
“A renewed spike in oil price uncertainty could magnify existing economic fragilities and deepen the slowdown in industrial activity,” the authors said.
To mitigate these risks, the economists urged central banks to remain vigilant and adjust monetary policy as needed to support economic stability. Governments, they added, should complement these efforts with targeted fiscal measures, including social protection programs such as cash transfers to cushion vulnerable households.
They also underscored the importance of reducing dependence on oil by investing in renewable energy, storage, and alternative fuels to strengthen resilience against future price shocks. / KOC