Energy Independent, Not Inflation Proof

Pandemic lockdowns. The Russian invasion of Ukraine. The U.S./Israel-Iran conflict. March is not a friendly month for those of us trying to form a view on the macro-economy. I cannot pretend to have any particular edge in predicting how the current Middle East conflict will end. However, my warning that inflation was the key problem to watch out for in my last column is even more valid today.

In that column, I argued that inflation would be higher for longer because of geopolitical volatility and deglobalization, and that was before the conflict in Iran broke out. Even if the war were to end tomorrow, or has already ended by the time you read this, the market disruptions will take months to resolve. At the time of writing, QatarEnergy had already reported that 17 percent of its production capacity was destroyed and would take three to five years to repair. To be sure, oil production can be switched on faster than Liquified Natural Gas but one should expect higher than ex-ante insurance premia. The disruption extends beyond energy to the industrial products such as naphtha and helium, which is critical for semiconductor production, not to mention fertilizers and food.

I often hear U.S. commentators argue that because the U.S. is energy independent, it’s sheltered from these impacts. That is sadly untrue. Energy independence helps, but at the margin, when energy importers are scrabbling for secure alternative supply, the U.S. is a price-taker from the global market. Moreover, because U.S. consumers pay a lower tax on their gasoline, the price at the pump is actually more sensitive to changes in the wholesale energy price than those in Europe. Finally, we have historically seen a far higher proclivity of European and Asian governments to subsidize fuel costs, whether through price caps or the more proactive release of strategic reserves.

All of this matters because 70 percent of U.S. economic growth is powered by the consumer and a rise in energy prices is highly regressive. For lower-income consumers, energy (whether for their homes or vehicles) accounts for 20 percent of all spending. And a large part of the cost of food is actually the cost of transportation.

I often hear U.S. commentators argue that because the U.S. is energy independent, it is sheltered from these impacts. That is sadly untrue.

What does this mean for real estate investors? Despite reassurances from the Federal Reserve in its March meeting, many market observers still believe that the next rate cut will not come until early 2027. Long bond yields are rising in all major global markets as they factor in higher inflation, delayed policy rate cuts and higher government spending on both defense and energy. So far, growth forecasts have not been meaningfully downgraded but that is highly dependent on the magnitude and duration of the disruption. History shows that sustained higher energy costs reduce demand and raise the specter of stagflation.

This makes for an uncomfortable scenario for real estate investors already facing a bifurcated leasing market and a tougher job of maintaining and enhancing NOI growth, not to mention an increase in the cost of debt. We expect to see geopolitical volatility reduce leasing and capital market velocity, but that doesn’t mean we should be sitting out the market. For investors at scale, market timing is a fool’s game. We remain disciplined but open for business. In particular, investments continue to look attractive in assets with long-duration income, with high in-place income relative to the sovereign government bond yield and decent inflation pass-through in the lease structure. Given that there are likely to be increased forced sellers, this could be a highly opportune time to buy current yield with the condition that speed and security of cashflow are king.

Sabina Reeves is chief economist & head of insights and intelligence at CBRE Investment Management, associate fellow at the University of Oxford and council member of Marlborough College. Follow Reeves on Threads: @sabinareevesconomist or on LinkedIn.

Read the April 2026 issue of CPE.