Firms' Views on the Current Oil Price Shock: Stable for Now, Risky for Tomorrow

June 02, 2026

Oil prices shot up to more than $100 a barrel at the end of February, and-roughly three months later-spot prices are still holding around $100 a barrel. Although gasoline and diesel prices domestically and abroad have risen sharply and crimped household spending, the question before us now is how much will this run-up in energy prices affect overall economic growth? Importantly, with inflation already running above the Federal Open Market Committee's price-stability target for 62 months, will this new energy shock play out much like the energy shocks of the past-creating a temporary pop in headline inflation-or will this additional inflationary impulse become ingrained in business decision makers' expectations and lead to persistently higher inflation? In this post, we examine how firms view the current oil price shock and find that, though the shock has had modest effects so far for most firms, sustained high oil prices could broaden cost pressures, raise prices, and weaken demand.

Why the economy might be more resilient this time

Economists typically look to the past for a rough guide on how current developments, such as this latest oil price shock, will play out over the near term. Indeed, historical oil shocks allow us to draw insights from the not-too-distant past (for example, the 1973 oil crisis, 1979 oil crisis, 2008 energy crisis, and the 2022 Russia-Ukraine war). Here, research from the Dallas Fed estimates the impact on inflation stemming from sharp spikes in oil prices. In modeling the impact of closures of the Strait of Hormuz lasting one, two, and three quarters, the Dallas Fed finds relatively moderate effects on headline and core consumer price index inflation rates for the remainder of 2026, with impacts increasing with the length of time the Strait remained closed. And, true to the typical nature of oil price shocks, these effects unwound relatively quickly and didn't leave a lasting inflationary impact.

Additionally, today's economy might be even more resilient against spikes in oil prices than it has been in past years. As a share of GDP, energy usage has fallen from 13.3 percent to 5.7 percent over the last 40 years. Data on consumer spending from the US Bureau of Economic Analysis show that households' share of spending on energy has also declined from 9.8 percent to 3.8 percent during that same period. Moreover, since 2019 the United States has become a net exporter of energy goods (both liquid natural gas and crude oil). So perhaps it's no surprise that crude oil futures have barrels trading below $80 a barrel by November 2026 and settling into the upper $70s by this time next year.

However, other indications suggest high oil prices could persist for some time. A recent Washington Post article noted that the Pentagon has warned Congress that mine-clearing operations could delay reopening the Strait of Hormuz for up to six months after any conflict resolution. Further, the Financial Times reported in mid-April that the conflict damaged more than 60 energy facilities in the region, estimating billions in necessary repairs that will further delay recovery.

Questions about oil prices from our Business Inflation Expectations survey

Given the speed at which oil prices have ratcheted up and the potential for high oil prices to remain a facet of the near-term outlook, we were interested in how business decision-makers saw the immediate impact of higher oil prices on their costs, prices, and demand as well as what would happen if oil prices rose further and remained elevated through the end of the year.

Specifically, in April's Business Inflation Expectations (BIE) survey we asked about the impact of recent increases in oil prices on firms' input costs. We also asked similar questions about the prices a firm charges for their products and their anticipated demand. Firms were then given two hypothetical paths-prices returning to $67 a barrel or staying around $130 a barrel by year-end-to gauge possible impacts on their input costs, prices, and demand.

For most firms, the current shock had modest effects, so far

In response to the question "How has the recent increase in oil prices impacted input costs for producing goods and services at your firm?," figure 1 shows that about two-thirds of respondents have seen little to no change or a small increase. Further, when looking at the impacts on prices and demand, both have more than 80 percent of respondents fall into this small-to-no-change group. In aggregate, few firms have passed these costs onto consumers, and demand outlooks have remained robust to the current shock, in line with the short-term outcomes reported in the aforementioned Dallas Fed research.

Additionally, in the April BIE survey, we asked firms about their share of total input costs that were energy- or oil-related so we could better understand the pressure on highly exposed sectors (for example, manufacturing, transportation, and retail sector firms). The majority of these highly exposed respondents indicated increasing costs and reported increased price pass-through and reduced demand. Although we're seeing evidence that those nearest to the oil shock are responding in a typical manner, the question is whether these additional costs driven by higher energy prices will transmit throughout the production chain and broaden out to those firms not as heavily affected by oil prices.

If high oil prices persist, impacts broaden

Specifically, the sanguine story our aggregate responses present materially changes should oil prices rise and remain elevated throughout the remainder of the year. In response to a hypothetical scenario where oil prices rise to $130 a barrel and remain there through the end of 2026, around half of respondents reported a moderate-to-significant increase in input costs as a result of the oil shock. Similarly, around 40 percent of firms reported a moderate-to-significant increase in prices, and around one-third of firms reported a moderate-to-significant decrease in demand.

Here, the story becomes a bit more worrisome. After more than five years of elevated inflation, a recent series of supply shocks (namely, the pandemic, the Russia/Ukraine conflict, and tariffs) have left firms in a potentially fragile position, with few ways to maneuver around further cost increases other than having to pass them-meaning, of course, higher prices. Indeed, according to our current profit margins index, firms, on average, already report compressed margins in the wake of these recent cost shocks relative to their prepandemic averages.

Additionally, firms that would pass on higher prices in the high-oil-price scenario realize that demand could falter as a result. We can further contextualize the intensity of the impact at present as well as in a hypothetically high-oil-price scenario by quantifying the responses. Firms provided range estimates for their input costs, prices, and demand. To better understand the dynamics at play, we reclassified them to the numerical midpoint of their selected range. Additionally, we structured our panel to distinguish between firms that are energy intensive (shares of oil inputs 5 percent and greater) and those that aren't (oil inputs less than 5 percent of total inputs), and this categorization captured responses from 205 oil-intensive firms and 250 non-oil-intensive firms.

Figure 2 shows that potential downside effects could nearly double for firms regardless of their exposure to oil. Specifically, oil-intensive firms expect prices to increase an additional 1.7 percentage points, while non-oil-intensive firms anticipate a 1.4 percentage point price increase. Similarly, higher energy-intensive firms forecast a further decline in demand of 1.6 percentage points, while non-oil-intensive firms report a 1 percentage point decline.

This shock is not merely a "localized" one, as even services-producing firms anticipate feeling the bite should higher oil prices persist. As figure 3 shows, both goods- and services-producing firms anticipate further price increases and erosion in demand if oil prices remain elevated. Interestingly, despite goods-producing firms anticipating higher prices caused by the oil price shock, changes in expected demand remain relatively consistent across goods- and services-producing firms, perhaps recognizing that sustained higher oil prices would ultimately damage consumer spending and aggregate demand.

Implications

Taking into account the initial conditions-firms might already be squeezed, given a series of cost shocks over the past five years that have affected their margins and already had firms actively cutting costs-a sustained period of elevated oil prices could represent the proverbial straw that breaks the camel's back. This possibility warrants concern that the standard approach to modeling oil price shocks might offer a forecast that is too sanguine. As of today, firms that are closest to the shock-those heavily reliant on energy in their production-are already seeing higher costs, passing some of those costs on to their customers, and seeing slightly lower demand as a result.

Will oil prices quickly revert to levels seen before the current conflict in the Middle East-or at least somewhere close? It remains an open question. However, what isn't an open question-at least in the minds of firms-is that a sustained bout of high oil prices could have a much stronger impact than standard models suggest.