Russia’s Deputy Prime Minister Alexander Novak on Thursday sought to reassure markets that OPEC+ would remain functional following the shock exit of the United Arab Emirates, even as the decision intensified concerns about the future cohesion of the world’s most influential oil-producing bloc.

Speaking to Russian news agencies, Novak dismissed speculation that the UAE’s departure could trigger a price war, arguing that current market conditions are defined not by excess supply but by severe shortages caused by the ongoing conflict involving Iran and the disruption of energy flows across the Gulf.

“In the current situation, it is hard to talk about a price war when there is a shortage in the market,” Novak said, according to Interfax. “What we are seeing instead is the deepest crisis in the industry.”

His remarks underscore how dramatically the balance of the global oil market has shifted since the outbreak of the U.S.-Israeli war with Iran. The conflict has crippled shipping through the Strait of Hormuz, the narrow waterway through which roughly a fifth of global oil and liquefied natural gas supplies normally pass. Tanker movements remain sharply below historical averages, while insurers, shipping firms, and refiners are grappling with soaring costs and mounting operational risks.

The result has been a rapid repricing of geopolitical risk across energy markets. Brent crude has climbed above $110 per barrel, while U.S. crude prices have surged close to levels last seen during earlier global supply crises. Analysts say the market is no longer responding primarily to traditional supply-demand fundamentals, but to fears of prolonged disruption to critical export infrastructure in the Gulf.

Against that backdrop, the UAE’s decision to leave OPEC carries significance far beyond the symbolic loss of one member. Abu Dhabi had long grown frustrated with production constraints imposed under the alliance’s quota system, particularly as it invested heavily in expanding output capacity. Officials in the UAE increasingly viewed the restrictions as limiting their ability to monetize investments and capture market share during a period of elevated prices.

Its exit therefore denotes a broader tension inside OPEC+: the divergence between producers seeking discipline to stabilize prices and those eager to maximize output while prices remain historically high.

The move also exposes deeper geopolitical undercurrents within the Gulf. The energy crisis triggered by the Iran conflict has sharpened differences among regional powers over production policy, export routes, and relations with global consumers. While the UAE has not signaled an immediate production surge, analysts believe the country is positioning itself for a post-crisis market in which it can operate with greater flexibility outside OPEC constraints.

For Russia, preserving the credibility of OPEC+ has become increasingly important. Since the alliance was formed in 2016, Moscow and Saudi Arabia have effectively acted as its twin anchors, coordinating production decisions that reshaped global oil pricing power. Novak’s insistence that Russia remains committed to the group is aimed at preventing perceptions of fragmentation from accelerating.

Still, traders and analysts say the UAE’s departure weakens the alliance structurally. OPEC+ has relied heavily on internal cohesion and coordinated messaging to influence market expectations. The exit of one of its largest producers risks encouraging other members to push for more autonomy, particularly once the current supply shock eases.

In the near term, however, the market remains overwhelmingly driven by scarcity. Novak acknowledged that “large volumes of oil are not reaching the market,” citing logistical breakdowns and disruptions tied to the Middle East conflict. Shipping bottlenecks, sanctions pressure, naval tensions, and restricted access to key ports have collectively tightened available supply even as global demand remains resilient.

This dynamic is feeding inflation concerns globally. Higher crude prices are already translating into rising fuel, transport, and manufacturing costs across major economies, complicating efforts by central banks to ease monetary policy. The persistence of elevated energy prices is one reason investors have become increasingly cautious about expecting aggressive interest-rate cuts from the Federal Reserve, the European Central Bank, and the Bank of England.

The broader consequence is an accelerating realignment of the global energy order. Countries are reassessing supply security, producers are seeking greater strategic independence, and consuming nations are confronting renewed vulnerability to geopolitical disruptions in the Gulf.

Novak is attempting to project stability at a moment when the oil market is increasingly defined by fragmentation and uncertainty. But the UAE’s departure has exposed the strains beneath the surface of OPEC+, raising questions not only about the future of the alliance, but about who will shape the next phase of global energy markets once the current crisis subsides.

The euro area economy has lost momentum at a critical juncture, with fresh data pointing to a fragile expansion now colliding with renewed inflationary pressure, much of it imported through energy markets disrupted by the Iran conflict.

Preliminary figures from Eurostat show the bloc grew just 0.1% in the first quarter, underscoring how geopolitical shocks are feeding directly into economic performance. Also, consumer prices accelerated sharply, with inflation rising to 3% in April from 2.6% in March, reversing earlier progress and moving decisively above the European Central Bank’s 2% target.

The composition of that inflation surge is central to the policy dilemma. Energy prices climbed 10.9% year-on-year, more than doubling the previous month’s pace, reflecting supply disruptions tied to the prolonged blockade of the Strait of Hormuz. For a region heavily dependent on imported energy, the shock has translated quickly into higher transport costs, industrial input prices, and household bills.

This dynamic leaves policymakers confronting a familiar but difficult trade-off. Raising interest rates could help anchor inflation expectations, but risks deepening an already weak growth profile. Holding rates steady, meanwhile, may allow price pressures to become entrenched, particularly if energy costs remain elevated.

The Governing Council is widely expected to keep its benchmark rate unchanged at 2% at its upcoming meeting, pinpointing a preference for caution as officials assess whether the current inflation spike proves temporary or evolves into a broader price cycle. Market expectations suggest the ECB is reluctant to react to what is, at least for now, a supply-driven shock beyond its direct control.

There are, however, early signs that underlying inflation pressures remain contained. Core inflation, which strips out volatile food and energy components, eased slightly to 2.2% in April. That marginal decline indicates so-called second-round effects, where higher energy costs feed into wages and broader pricing behavior, have yet to take hold at scale.

Analysts at Morgan Stanley framed the data as supportive of a wait-and-see stance.

“At the very least, this confirms short-term risks to core inflation are contained and the data do not point to the need [for the ECB] to act fast. This aligns with our long-held view that the ECB will remain on hold in April and will want to keep all options on the table for the next meetings,” the bank said.

Yet the broader macroeconomic backdrop is deteriorating. Economists increasingly warn that the euro zone could be drifting toward stagflation, where weak growth coincides with persistent inflation. That risk is being amplified by the external nature of the current shock. Unlike demand-driven inflation cycles, energy-led price spikes tend to suppress consumption while simultaneously lifting costs, creating a negative feedback loop across the economy.

The strain is already visible in business sentiment and consumer confidence indicators, both of which have softened in recent weeks. Higher fuel prices are eroding disposable incomes, while companies face margin compression as input costs rise faster than they can pass them on.

Economists at Berenberg were blunt in their assessment, warning that the Iran war is “battering European economies.” They pointed to a convergence of pressures, including trade tensions and global competition, alongside the energy shock.

“While the Strait of Hormuz remains largely closed and pervasive uncertainty weighs on confidence, the Eurozone and UK economies will likely suffer a bout of stagflation,” they said.

Crucially, the bank cautioned against a premature policy response. “If the ECB were to hike rates in response to the temporary spike in inflation, the Eurozone may first fall into an unnecessary mini-recession in late 2026 or early 2027 before the economy can start to recover from that policy mistake,” it said.

That warning underlines a deeper concern within markets: that central banks, scarred by the inflation surge of 2022, may overcorrect in the face of a fundamentally different shock. In this case, tightening financial conditions would do little to address the root cause of inflation, constrained energy supply, while exacerbating weakness in investment and consumption.

The euro zone’s position is further complicated by structural vulnerabilities. Energy diversification efforts since earlier crises have reduced dependence on single suppliers, but not eliminated exposure to global price swings. With alternative supply routes stretched and demand rising globally, Europe faces higher costs regardless of sourcing strategy.

For now, the ECB appears inclined to prioritize stability over decisive action, effectively betting that inflation will moderate as energy markets normalize. That assumption, however, rests heavily on geopolitical developments beyond its control.

In the near term, the bloc’s outlook seems to hang on two variables: the duration of the Hormuz disruption and the extent to which elevated energy prices filter into wages and broader inflation dynamics. Until there is clarity on both fronts, analysts expect policymakers to remain constrained, navigating a narrow path between curbing inflation and avoiding a deeper economic slowdown.