The price of crude has risen over the past two years, from $26 in 2016 to $77 on Monday, as the balance between supply and demand has been steadily tightening.

A worker prepares to lift drills by pulley to the main floor of a drilling rig in the Permian basin. Brittany Sowacke | Bloomberg | Getty Images

A dramatic upswing in oil prices over recent months could soon create a "particularly hostile environment" for global investors, Citi economists warned Monday. The price of crude has risen over the past two years, from $26 in 2016 to $77 on Monday, as the balance between supply and demand has been steadily tightening. This has helped boost company's profits too — with several oil and gas producers and refiners among the biggest gainers on Wall Street over the past month. However, President Donald Trump's decision to pull the U.S. out of the Iran nuclear deal "constitutes a major geopolitical shift" which could trigger a move in the direction of "stagflation," a global strategy team at Citi, led by Mark Schofield, said in a research note published Monday.

The combination of subdued economic growth and rampant inflation — also known as stagflation —would likely create a "particularly hostile environment for risk assets," the U.S. bank added. Alongside a broader escalation in regional conflict, Citi economists argued that a sustained increase in oil prices and weaker-than-anticipated global economic growth data could combine to heighten the risk for financial market participants.

'All that is certain is volatility'

Last week, Trump vowed to quit the landmark 2015 accord and promised to re-impose sanctions on Iran. The contentious decision, which was largely at odds with the international community, has stoked anxiety in the Middle East.



Iran pumps approximately 4 percent of the world's oil, with the looming prospect of American sanctions set to cut off some of that supply. When sanctions were imposed by the Barack Obama administration on Tehran in 2012, Iran's oil exports dropped to approximately 1.5 million barrels per day (bpd). Since the export restrictions were lifted in 2015, as part of the multilateral deal that offered economic relief in exchange for curbs to Iran's nuclear program — formally known as the Joint Comprehensive Plan of Action (JCPOA) — that figure increased by more than 1 million.

President Donald Trump gives a thumbs up while holding an umbrella in the rain as he arrives at Dallas Love Field aboard Air Force One to address the National Rifle Association Convention in Dallas, Texas U.S., May 4, 2018. Carlos Barria | Reuters