The recent attacks in the Middle East have already triggered one of the most severe oil market disruptions in decades, sending shockwaves through global energy supply chains. Joint U.S. and Israeli strikes beginning on February 28th —along with Iran’s retaliatory attacks across the region—have directly targeted energy infrastructure and choked off critical transit routes.
One element of the Iranian response to these attacks has been attempts to limit tanker movements through the Strait of Hormuz, the world’s most important energy chokepoint. Transits through the strait have collapsed by more than 80 percent over the course of days, restricting the flow of nearly one fifth of global oil shipments. These disruptions have already pushed crude prices sharply higher, as markets price in the risk of prolonged shortages and powerful inflationary pressure throughout the economy.1
Commonfund Institute tracks prices that impact educational institutions and nonprofits more broadly, so we explore the potential impacts of these developments below.
Reduced Supply Pushes Energy Prices Higher
If demand for related fuels remains relatively steady, reduced oil supply drives prices up sharply in the short-term. To illustrate, the graph below shows that oil market shocks tend to dramatically increase prices to the tune of double-digit spikes within 30 days.
Rising Energy Costs Increase Expenses for Households, Businesses, and Nonprofits
Consumers typically experience supply-driven price jumps almost immediately. Filling up a gas tank becomes more expensive, and heating costs rise – which will fall on top of years of elevated inflation and energy cost spikes driven by data center energy demand. Because these are typically non‑discretionary expenses, households, businesses, and nonprofits have limited ability to adjust in the short term, directly impacting balance sheets and reducing purchasing power.
Commonfund tracks inflation for the education sector in the Higher Education Price Index (HEPI), which assumes that roughly 7 percent of educational institutions’ budgets are comprised of utilities costs. These direct costs could climb throughout the remainder of fiscal year 2026, which may be reflected in our first fiscal year estimate released in April. HEPI also includes costs related to supplies and materials that institutions purchase, but the broader inflationary impact of these shocks will be determined over a longer period.
If inflation to a relatively small budget item increases for a short period of time, action of Boards and investment committees may not be warranted. However, if inflationary pressure is sustained, there can be implications for investment return targets, asset allocation strategy, and spending. It is with this dynamic in mind that many institutional investors maintain an exposure to natural resources in their private portfolios as a potential hedge against unexpected inflation.
Central Banks Face a Policy Dilemma
Beyond direct energy costs, supply-driven oil price spikes can raise costs across the economy. Transportation and logistics firms face higher fuel bills, manufacturers pay more for energy-intensive processes, and industries reliant on petrochemicals see input costs climb. These expenses often get passed on to customers, broadening the impact and threatening the progress that has been made to bring down inflation in the economy.
This can pose a challenge for monetary policymakers. When the initial source of inflation is supply driven—something higher interest rates cannot fix directly—central banks may still consider tightening policy if they see broader price pressures forming. The goal will be to prevent a temporary energy shock from embedding itself into wages and prices more broadly.
While it is possible that these shocks are short-term in duration, we will continue to track these developments and their potential impacts on nonprofits, policy, and the broader economy.
