Further Oil Price Spikes Could Rekindle Recession Fears

Further Oil Price Spikes Could Rekindle Recession Fears

Irina Slav

Mon, September 14, 2026 at 12:00 AM GMT+3 5 min read

This week's oil price surge sharply raised the odds of a Fed interest rate hike next week and re-launched the recession conversation, for the first time since the early weeks of the Iran war.

The price spike this week saw Brent Crude prices topping $100 per barrel for the first time since July and the U.S. benchmark, WTI Crude, exceeding $100 a barrel as well, after the U.S.-Iran tensions escalated again with no talks of a deal in sight.

For six months during the Iran war, the global and U.S. economies have remained resilient in the face of the worst energy market disruption in history, with oil and LNG flows choked at the Strait of Hormuz.

Many countries released oil stocks from strategic reserves to fill the gap left by the restricted supply from the Middle East, China slashed its crude oil imports and limited fuel exports, and demand destruction through the high oil and fuel prices did the rest of the work to keep the oil market relatively subdued since March, with occasional spikes when tensions flared up in the Persian Gulf.

Most of these cushions have now vanished. In the United States, for example, crude stocks in the strategic reserve are at their lowest level since the early 1980s.

Separately, China eased its restrictions on fuel exports and returned to buying more crude, with imports rebounding from the decade-low seen in June.

Crude flows from the Strait of Hormuz have somewhat recovered to an estimated half to two-thirds of pre-war levels, but fuel supply remains severely limited. Combined with refineries outside the Middle East and Russia unable to offset the loss of supply from these two regions, the stress in fuel markets became much stronger than on crude oil prices.

As a result, diesel and gasoline prices rallied at the end of the summer, with U.S. gasoline prices at a record high for this time of year, when they would typically drop due to lower seasonal demand.

The price of diesel, the main fuel of the economy, has just hit the $6 per gallon average in the United States for the first time ever, after breaking the all-time record of $5.85 last week.

The spike in crude and fuel prices are pushing up Treasury yields and longer-term borrowing costs, while the Fed could move to anticipate an inflation shock by raising its key interest rate as soon as next week.

The word 'recession' started creeping into the conversation, again.

It's a very distant prospect, for now, but should oil and fuel prices spike further, the odds would rise, according to Goldman Sachs.

The investment bank had a 30% chance of recession within 12 months back in March, at the start of the Middle East conflict. Six months of resilient global and U.S. economies in the face of the supply disruption and the cushions the world had in recent months have lowered the odds to 15% now.

"We've scaled back our estimate of 12-month recession risk. We had that at about 30% back in March. We've got it at 15% now, but yeah, if we were to see another shock, we'd raise that again," Jan Hatzius, Goldman Sachs Chief Economist, told Yahoo Finance this week.

Recession may be a distant prospect, but an interest rate hike is certainly not.

The CME FedWatch key rate gauge showed that as of September 10, traders put the chances of a 0.25-basis point hike at Fed's meeting next week at 72.4%, up from 49.4% a week earlier.

Economic growth and consumer spending would also be hit if prices remain this high or spike further, according to Goldman Sachs.

The Wall Street bank currently projects about 1.5% GDP growth in the second half of the year, "but that does not build in another major shock," Hatzius told Yahoo Finance.

"If we had a major increase in gasoline prices, then we probably take that down because that is very directly relevant for consumer real income."

Gasoline prices directly affect consumer spending, but record-high diesel prices translate into higher prices of goods and accelerate inflation.

"Not every day are new all-time records set, and this will be a particularly painful one for the economy that may not even be immediately felt, but record diesel prices will impact every cargo, shipment, every delivery Americans are taking, and are likely to reignite inflation up and down the supply chain, said Patrick De Haan, head of petroleum analysis at GasBuddy.

"And for now, it comes at a time of year when diesel prices also traditionally rise, adding more pain. I suggest Americans anticipate a costlier holiday season, as it appears diesel prices could continue climbing as geopolitical tensions continue to remain a main factor."

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com

Oilprice Intelligence brings you the signals before they become front-page news. This is the same expert analysis read by veteran traders and political advisors. Get it free, twice a week, and you'll always know why the market is moving before everyone else.

You get the geopolitical intelligence, the hidden inventory data, and the market whispers that move billions - and we'll send you $389 in premium energy intelligence, on us, just for subscribing. Join 400,000+ readers today. Get access immediately by clicking here.