Are high oil prices colliding with the AI industry narrative and rewriting the macroeconomic script for 2026?

This sharp volatility in the energy market is rapidly spreading to the global economy.

Due to the turmoil in the Middle East, Brent crude oil prices broke through $100 per barrel on the 18th, with a nearly 50% increase this month. This intense fluctuation in the energy market is quickly impacting the global economic system.

At 2:00 PM Eastern Time on March 18th, the U.S. Federal Open Market Committee (FOMC) will release its March interest rate decision. As of press time, CME FedWatch shows a 99% probability that the federal funds rate will remain unchanged. However, the situation in the Middle East is exerting pressure on the Fed’s dual policy goals, with rising energy costs and a slowing labor market coexisting, pushing the U.S. economy toward stagflation.

A quantitative study by the Federal Reserve indicates a high sensitivity between oil prices and U.S. inflation. Every 10% increase in oil prices typically contributes about 40 basis points to overall U.S. inflation over the following quarters, with core inflation rising by 15 basis points at peak times.

According to Juan Correa, Chief Global Asset Allocation Strategist at BCA Research, this variable is rewriting the macroeconomic script for 2026. In an interview with First Financial, Correa said that before the escalation of geopolitical tensions, the global economy was at a rare balance point, with accelerating growth and moderate inflation driven by lagging food and housing costs. This environment provided valuable space for global central banks to maintain low interest rates.

The biggest challenge to this “Goldilocks” narrative is whether inflation can stay moderate. Correa expressed concern about misjudging inflation. If geopolitical risks cause U.S. Treasury yields to spike due to inflation expectations, capital expenditure cycles could be disrupted.

The Shadow of Rate Hikes and the Fed’s Dual Test

Regarding the upcoming Fed rate decision, Swiss Pictet Wealth Management Senior Economist Cui Xiao believes that the hawkish risk lies in the dot plot showing a median of zero rate cuts, or Powell mentioning persistent inflation driven by tariffs or oil prices. The Fed may consider raising rates again.

Li Huiqi, Macro Strategist at UBS Wealth Management, told First Financial that while the Fed usually filters short-term energy price fluctuations, prolonged high inflation could raise concerns about a repeat of the inflation runaway after the Russia-Ukraine conflict in 2022. If consumer inflation expectations rise broadly, markets will have to reprice the rate cut path or even anticipate rate hikes.

“The next month will be critical for macro impacts on the real economy. Our estimates suggest that if oil prices stay above $90 for more than six months, U.S. annual inflation could rise by about 60 basis points; if prices climb above $120 and stay there for over six months, inflation could increase by as much as 150 basis points,” Li said.

Hu Jie, a former senior economist at the Federal Reserve and professor at Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance, recently told reporters that the Fed is always assessing whether overall inflation aligns with policy goals. Officially, the Fed often cites core CPI, PPI, and core PCE as key indicators, but internally, it considers dozens of more granular sub-indicators.

He noted that if energy prices continue to soar, it would be highly detrimental to inflation control. As a fundamental input for modern economic activity, energy prices are highly permeable, affecting nearly all goods and services. “From the Fed’s perspective, this event warrants close attention.”

Mercer, an investment management consultancy, told First Financial that the main channels affecting the 2026 inflation trajectory will be crude oil prices and supply chain transportation costs. They emphasized that the extent of inflation damage depends on the severity and duration of oil supply shocks. If the Strait of Hormuz shipping volume recovers quickly without major infrastructure damage, oil prices are expected to decline.

He added that unless the shocks are large enough and long-lasting to trigger secondary inflation effects, rising energy and transportation costs alone are unlikely to fundamentally alter the current rate-cutting pace of the Fed and ECB. “Our baseline remains that the Fed will continue to cut rates this year, and we believe the ECB has completed its easing cycle,” he said.

AI’s “Energy Lock” and Valuation Restructuring

High oil prices will impose dual costs on Silicon Valley’s AI narrative—costs and financing.

On the cost side, rising oil prices will quickly impact electricity and logistics markets. Morningstar analyst Felix Lee said that energy expenses account for about 3% to 6% of revenue for chip giants like TSMC, Samsung, and SK Hynix. If the situation prolongs, these costs will rise substantially and eventually be passed downstream to AI industry clients.

Additionally, helium, a byproduct of liquefied natural gas (LNG) production, is crucial for semiconductor manufacturing. If Qatar’s LNG exports are disrupted, helium supply could tighten. Felix Lee noted that a prolonged halt in LNG production could exacerbate helium shortages, reduce chip yields, and in the worst case, cause temporary shutdowns of wafer fabs.

Furthermore, higher energy costs may slow the development of AI infrastructure such as data centers. He explained, “Oil accounts for about 38% of total U.S. energy consumption, and the U.S. hosts most of the world’s AI data centers. While oil isn’t the main power source for electricity, rising crude prices tend to affect the entire energy market. Driven by high-power GPUs and advanced cooling systems, AI data centers consume far more electricity than traditional servers. If energy prices stay high, cloud providers may reconsider the deployment speed of AI servers, which could trigger a chain reaction for chip manufacturers riding the AI wave.”

The International Energy Agency (IEA) forecasts that global data center electricity consumption will double by 2030, surpassing Japan’s total electricity use. Goldman Sachs estimates that the additional power demand from global AI data centers during the same period could be equivalent to the electricity consumption of 75 million U.S. households.

On the financing side, the core logic of the Silicon Valley AI narrative—“investment expansion in a low-capital-cost environment”—is becoming increasingly fragile.

“Looking at high-yield credit yields, a few years ago, a B-rated company’s borrowing cost was around 10%, now it’s about 7%; a BB-rated company’s cost was 8%, now close to 5%. We’ve moved away from the high-interest-rate environment of previous years, and current rates are closer to 2018 levels, which has accelerated demand for business loans,” Correa said. “Unlike heavily indebted government sectors, private sector debt isn’t high. Data shows that corporate leverage is at a historic low, and non-financial corporate debt repayment ratios are also at historic lows. So, companies not only want to increase leverage but also have the capacity to do so.”

He added that U.S. banks have also begun to loosen lending standards again, creating the “three perfect elements” for an accelerated credit cycle in the U.S. However, if inflation spirals out of control and rate hike expectations reignite, capital expenditure will slow due to higher financing costs.

The “Goldilocks” Inflation Narrative Under Attack

Correa believes that before the Middle East situation disrupts the balance, the world is in a rare “Goldilocks” period—moderate growth and low inflation.

Regional manufacturing and services employment indicators, leading by three months, previously suggested that U.S. non-farm employment would rebound in 2026. The core driver of this increased hiring willingness is a significant rise in capital expenditure.

“Core durable goods orders and non-defense capital goods orders excluding aircraft are both growing in tandem, indicating that capital investment is spreading beyond AI alone,” Correa said. This “virtual-to-real” shift is driven by the massive demand for raw materials like copper and commodities needed for AI infrastructure.

“AI is changing the key factors in economic pricing. Tangible assets (land, commodities, physical infrastructure) will become more expensive relative to intangible assets (software, cloud). If AI proves as disruptive as expected, these real economy sectors will be the true structural winners,” he stated.

However, this also means that if oil shocks trigger runaway inflation, the crisis will extend far beyond AI. He warned that rising inflation will directly challenge corporate leverage expansion, risking a structural disruption in the global reindustrialization and electrification capital expenditure cycle.

According to AAA, as of March 18, the national average gasoline price reached $3.842 per gallon (3.79 liters), up 30% from the past month’s average. Goldman Sachs warned in a report that if oil prices continue rising, inflation could climb from 2.4% in January to 3% by year-end.