Even as global equities continue to scale record highs and silver prices surge alongside risk assets, concerns are mounting among some market veterans that investors may be underestimating the long-term economic fallout from the Middle East energy crisis.
Speaking to ET Now, veteran strategist David Roche from Quantum Strategy argued that the current rally in equities is being driven by optimism around artificial intelligence spending, resilient US economic data, and expectations that geopolitical tensions will eventually ease. However, he warned that the underlying risks in global energy markets remain severe and could eventually destabilize growth, inflation, and supply chains worldwide.
According to Roche, markets are focusing on near-term strength in the US economy while ignoring structural vulnerabilities emerging in the oil market. He noted that the US economy has so far remained resilient, inflation has not accelerated sharply, and AI-led capital expenditure continues to fuel optimism across Wall Street.
“You have AI which is spending 20% of capital expenditure to the tune of $700 to $800 billion a year and you have Donald Trump's umpteenth proposal to solve everything which troubles the world including the Middle East. So naturally, you have a kind of a bull market,” Roche said.
At the same time, Roche cautioned that much of the current economic data reflects past momentum rather than future conditions. He said the US economy remains exposed to rising global energy prices despite having larger oil inventories and domestic production advantages compared to other countries.
“The US is backward-looking in the sense that GDP is the result of previous quarters and the activity we are seeing is the result of income which will be eroded in the future,” he said.
Roche warned that falling reserve levels and tightening oil supplies could become a major concern by late August. In his view, the crisis is evolving gradually in the United States but may hit the rest of the world much faster because many countries lack sufficient energy inventories.
He added that if global oil supplies shrink significantly, the impact may extend beyond higher fuel prices to actual shortages at gas stations. According to Roche, such a scenario could result in a sharp contraction in global GDP.
“At this point in time, the issue will not just be the price at the pump, the issue will be there will be no gas in the pump,” Roche said, adding that world GDP could fall between 3% and 6% if oil supply disruptions worsen materially.
Another major concern highlighted by Roche was the market assumption that inflation will remain subdued enough for central banks to begin cutting interest rates. He dismissed that expectation, arguing that energy-driven inflationary pressures would make rate cuts difficult for policymakers.
Shipping Costs and Insurance Risks Rise
Roche also explained how the Middle East conflict is already disrupting global shipping and logistics markets through higher freight rates, energy costs, and insurance premiums.
According to him, a significant number of vessels remain trapped in Gulf waters, reducing the available supply of ships globally. This shortage has already started pushing shipping costs higher, particularly in bulk transportation markets.
“The crisis impacts shipping in two ways. Number one, it diminishes the supply of ships because there are over 800 ships that are locked up in the Gulf,” Roche said.
He further noted that shipping operators are simultaneously facing a steep rise in bunker fuel costs, which directly affects freight pricing across international trade routes.
“The bunker fuel prices are up 70%. So guess what? The ships are going to charge you more for moving your stuff,” he said.
Beyond freight costs, Roche pointed to escalating insurance risks across major maritime trade corridors such as the Red Sea and the Strait of Hormuz. He noted that several regions are now effectively being treated as war zones by insurers, making coverage either extremely expensive or unavailable.
“The whole of the Red Sea and the Gulf, Strait of Hormuz, are now war areas,” Roche said, adding that insurers are likely to raise premiums globally to compensate for heightened geopolitical risks.
The comments come at a time when investors are balancing optimism around AI-driven growth and resilient corporate earnings against mounting uncertainty in global commodity and energy markets. While equity markets continue to signal confidence, Roche’s warning highlights the possibility that prolonged geopolitical disruptions could eventually spill over into inflation, trade flows, and economic growth worldwide.
