AI vs. war
As we approach the middle of the year, markets and the global economy appear to be locked in a “tug of war” between the geopolitical shock of the war in the Middle East and the rapid maturation and deployment of artificial intelligence (AI).
The war has removed an estimated 12 million barrels of oil per day from the global market – the largest supply hit in history. Indeed, according to Macquarie Bank, global crude oil declines so far in 2026, have significantly exceeded those during the 1973 Yom Kippur War, the 1979 Iranian Revolution, the 1990 Gulf War and the second Gulf War of 2003.
Consequently, we have seen oil prices flirt with US$150 per barrel, and shipping costs for tankers have spiked as naval blockades and damage to infrastructure from drone strikes dominate the headlines. For many observers, this feels like a return to the 1970s, a decade defined by energy queues and stagflation.
Indeed, with U.S. real private demand growth below average, inflation moving higher (even before the war began), and the University of Michigan consumer survey suggesting sentiment remains historically low, the timing of an oil price spike is not ideal.
Despite all of this, a record-breaking surge in business investment, driven by AI, has pushed U.S. equity markets to all-time highs.
Investment in Information Technology (IT) is currently growing at its fastest pace since the tech boom of the late 1990s. A growing number of reports suggest companies are fundamentally restructuring their operations to integrate these AI tools.
Importantly, however, while the micro-level stories of efficiency gains from AI are becoming more frequent, we have yet to see a definitive macro productivity boom in the official aggregate economic data.
Nonetheless, this investment surge is providing a critical offset to the energy price spike.
By boosting demand for high-tech services and driving business spending, AI is helping to keep global Gross Domestic Product (GDP) growth afloat even as the Strait of Hormuz remains a chokepoint. And perhaps more importantly, the labour market hasn’t succumbed to the AI-driven unemployment wave feared by many.
Sure, overall employment growth in the U.S. remains weak, but unemployment remains low, and even recent graduates are finding work despite fears AI would do them out of jobs.
The churn of the labour market continues, with 60 million Americans (35 per cent) changing jobs last year alone. This suggests that A.I. is augmenting rather than simply replacing human labour, creating a “zero-employment growth” equilibrium that is stable for now.
While hopes of A.I. productivity gains could be driving the stock market higher, another explanation could be speculation and the fear of missing out (FOMO). If the latter is the real driver, a blow off top is possible followed by a significant correction. If the war drags on and forces oil prices toward the $200 mark, the resulting demand destruction could overwhelm the A.I. boost.
If, however, AI tools become a permanent fourth force in the economy (alongside Land, Capital and Labour) this rally is only just getting started.
We are witnessing something of a historic collision between conflict and computer code, war versus web applications, and oil versus open-source software. The question is; can technology move faster than a geopolitical crisis?
The outcome of the tug-of-war is still uncertain. Do the bulls win? For now, the resilience of the global economy is the real story, and if the S&P 500 is any guide, so far in 2026, the answer is a cautious ‘Yes’.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
