Citi is now clearly putting a “stagflation scenario” on the table for markets, against the backdrop of Middle East tensions and rising energy prices, stressing that the key risk – despite the current truce – is not an immediate collapse in profits, but a deeper restructuring within the market.

The key message of the analysis is that even if peace does not come to the region – and while there is already a ceasefire – and a negative macroeconomic scenario ultimately prevails, overall earnings per share (EPS) may prove more resilient than the market expects, but the picture “below the surface” will change drastically, leading to rotation between sectors, markets and investment themes.

At the macro level, Citi estimates global growth for 2026 at 2.7%, with inflation at 3.1%, already higher than previous estimates. However, in more extreme scenarios, with oil firmly above $100 a barrel, the picture worsens markedly: global growth could fall by up to 1 percentage point, while inflation could rise by 2 percentage points.

This translates into an environment whereevery 10% increase in energy prices “cuts” 15-20 basis points from growth and adds 30-40 basis points to inflation. Although the global economy is less energy-intensive than in the past, the shock remains substantial, particularly for Europe and Asia, which are more dependent on imported energy.