Oil up 40%, gas up 60%: Bank for International Settlements warns of a 2022-like scenario

2022 vs 2025: Two Supply Shocks, Two Risk of Errors

In 2022, the war in Ukraine combined with the post-Covid recovery triggered a widespread surge in prices. The US Federal Reserve and the European Central Bank initially labeled the inflation as « transitory » before having to undertake some of the quickest and most significant interest rate hikes in decades. This initial hesitation remains one of the most discussed episodes in recent monetary history.

The parallel with the current situation is tempting. The orders of magnitude are similar: a +40% increase in oil prices and a +60% hike in wholesale gas prices since the conflict erupted in the Middle East. However, the BIS warns against a too simplistic interpretation of this parallel. Hyun Song Shin, the institution's economic adviser, emphasizes the potentially temporary nature of the current shock. A one-time supply shock, he notes, does not call for the same monetary response as an inflationary spiral rooted in demand and wage expectations.

The real challenge lies precisely in this diagnosis: how to distinguish, in real time, between a transitory shock and a persistent one? In 2022, central banks decided too late in favor of the former hypothesis. The BIS now urges them not to decide too quickly in favor of the latter.

Markets React: Major Repricing of Rate Trajectories

Without waiting for the first inflation data reflecting the rise in energy prices, financial markets have already drastically revised their monetary policy expectations. In the United States, investors now expect only one rate cut by the Fed in 2025, whereas they had anticipated more prior to the onset of the crisis. In the eurozone, the scenario has reversed: a rate hike by the ECB is now considered likely as early as summer, with an additional increase expected before the end of the year.

This abrupt repricing reflects a well-documented market reflex: after being caught off guard in 2022, market participants are now attempting to anticipate central banks' next moves rather than analyzing the fundamentals of the current shock. The Bank for International Settlements explicitly highlights this disconnect. According to the institution, these adjustments are more of an instinctive reaction than an analysis supported by solid economic indicators.

This situation creates a risk of a self-fulfilling prophecy. If markets factor in a significant monetary tightening, financing conditions tighten in practice—rising bond yields, credit pressures—even before central banks take any action. The first meetings of the Fed, the ECB, the Bank of England, and the Bank of Japan since the beginning of the crisis in late February are thus a crucial test of communication as well as strategy.

The BIS Approach: Maintaining Perspective Under Pressure

The stance of the BIS is part of a broader reflection on the art of monetary policy during periods of exogenous shocks. The institution does not claim that the risk of inflation is nonexistent. Rather, it argues that the appropriate response requires an observation period that neither the markets nor the public are spontaneously willing to provide.

Historically, energy supply shocks present a classic dilemma for central banks. Tightening monetary policy can help contain inflation expectations but at the cost of potentially severe economic slowdown in a context where households and businesses are already enduring rising costs. Taking no action preserves short-term economic activity but risks a price surge if the shock spreads to other sectors and wages.

The BIS also notes that major central banks have learned lessons from 2022 by now incorporating more risk scenarios into their public communications. This evolution makes their decisions more transparent and, theoretically, reduces the risk of sudden surprises. It remains to be seen if this increased transparency will be enough to calm market anxiety in the face of inflation figures that will inevitably reflect rising energy in the coming months.

Beyond Oil: Other Volatility Fronts Monitored by the BIS

The BIS quarterly report isn't limited to the energy shock. The institution identifies other recent sources of turmoil contributing to the global instability of markets. Among them are significant corrections observed in AI-related stocks, whose valuations had reached historically high levels. These adjustments are a reminder that volatility can emerge from market segments far removed from the energy sphere.

The BIS also notes occasional tensions in the private credit market, a rapidly growing segment in recent years with structurally limited liquidity. During times of stress, these pockets of fragility can amplify market movements, although they do not currently pose a systemic risk.

The institution clarifies that no major imbalances are identified in the global financial system. This measured assessment contrasts with the alarmist tone prevalent in part of the public debate. For the BIS, the goal is not to deny risks but to prioritize them: the main danger in 2025 might not be the shock itself, but the disproportionate reaction it could trigger — in markets and in central bank boardrooms alike.