The Organization for Economic Cooperation and Development (OECD) has issued a stark warning that prolonged disruption of energy supplies from the Middle East, stemming from the ongoing conflict with Iran, would deliver a severe blow to the global economy. The report, released on Wednesday, indicates that such a scenario could push some countries into recession while spreading inflation and higher unemployment worldwide.
Impact on Global Growth
Under the OECD's prolonged disruption scenario, global economic growth is projected to slow from 3.4% last year to 2.1% this year and further to 1.8% in 2027. This would represent a slump comparable to major economic setbacks such as the COVID-19 pandemic and the global financial crisis of the late 2000s. In contrast, a time-limited disruption, where energy production and shipments from the Gulf begin to return to pre-war levels by mid-2026, would see growth slow to 2.8% this year before rebounding to 3.1% in 2027.
Hardest-Hit Regions
Asian economies, which heavily depend on crude oil, fuel, and natural gas from the Persian Gulf, are expected to be the most severely affected. The closure of the Strait of Hormuz due to the risk of Iranian attacks has largely choked off these supplies. Poorer countries, where a larger portion of household income is spent on fuel and food, will also face significant hardships. The OECD emphasized that the consequences of sharply higher energy prices and inflation would be felt globally.
OECD Secretary-General's Warning
OECD Secretary-General Mathias Cormann stated, "The global economy entered 2026 with robust momentum, but the outlook has weakened significantly since the start of the conflict in the Middle East, with effects likely to be felt for some time. The longer the disruptions last, the larger the economic and social costs become." He cautioned that government spending aimed at relieving energy costs should be targeted at those most in need and remain temporary to avoid excessive government debt and preserve incentives for energy conservation.
Current Situation
Despite a declared ceasefire in the US-Iran war, ongoing risks to shipping have reduced traffic through the Strait of Hormuz by more than 90% compared to pre-war levels. This has disrupted approximately one-fifth of the world's supplies of crude oil, fuel products, and natural gas. The OECD report follows a UN study warning that higher energy prices will impact nearly one billion people in poorer countries and small island states dependent on imported fuel, forcing difficult tradeoffs between covering energy bills and investing in essential public services. More than 30% of people in those countries already live below the extreme poverty line, defined as living on $3 or less a day.
The OECD, an international intergovernmental organization and policy forum comprising 38 democracies with market-based economies, is headquartered in Paris.
