Wild swings in oil prices are actually more concerning than high oil prices themselves… and a new study explains why.

A study by the independent trade monitoring organization Global Trade Alert (GTA) finds that the disruption caused by oil price volatility can be even more damaging than high oil prices themselves. If price swings driven by conflicts involving Iran persist, global goods trade may not only fail to grow but could actually shrink by 1.75% by the end of next year.

The analysis in this study is based on models built from past price shocks, including those triggered by the COVID-19 pandemic and the 2008 commodities crash. Simon Evenett, GTA founder and trade expert at IMD Business School in Switzerland, explains:“We found that sustained fuel price volatility slows global trade growth, and the full impact can take up to 19 months to materialize. The worst may not have even hit yet.”Evenett notes that the transmission of oil price shocks to the real economy takes months because it involves renegotiating shipping contracts, depleting inventories, andcruciallyeroding consumer confidence in key markets.

Importantly, the analysis shows that price volatility is far more damaging than simply maintaining high oil prices. When prices are high but stable, the additional revenue for commodity-exporting countries can offset the negative impact on manufacturing export economies like Japan or the Eurozone. But it is the unpredictable, sharp swings in oil prices that ultimately hurt global goods trade.

Since the US and Israel launched attacks on Iran on February 28, Brent crudewhich was around $70 per barrel before the conflictspiked to nearly $120 per barrel at the height of military tensions. As reports of diplomatic breakthroughs emerged, prices fell back to $86 per barrel, only to climb above $126 per barrel last week after talks stalled.

The GTA model examines two volatility scenarios: 25% and 100%. Under the 100% volatility scenario, after 19 months, the hardest-hit regions would be the Middle East and Africa, with trade growth expected to drop by 8 percentage points. In mainland China, trade growth could fall by nearly 3 percentage points, roughly three times the impact on the US. In contrast, emerging Asia and Latin America would be largely unaffected, with trade growth reductions of less than 1 percentage point.