OECD Warns: Middle East Conflict May Slow Global Economic Growth Through 2026

The Organisation for Economic Co-operation and Development (OECD) forecasts a slowdown in global economic growth, reaching 2.8% this year, compared to 3.4% recorded in 2025, with expectations of it rebounding to 3.1% by 2027. This anticipated slowdown is attributed to the ongoing repercussions of the conflict in the Middle East and its impact on energy markets and global trade. In its report, the organization stated that the war in the Middle East imposes significant humanitarian costs and tests the resilience of the global economy. It noted that the duration and extent of the conflict remain uncertain. It also highlighted a noticeable rise in energy prices and key agricultural and industrial production inputs since last February, due to a decline in production and exports from Gulf economies. The OECD explained that rising energy prices have pushed inflation rates upward in many economies, weakening real household incomes. Indicators of supply shortages have also emerged, with Asian economies being the most vulnerable to these shocks due to their relative reliance on imports from the Middle East. The organization indicated that the greatest burden will fall on developing economies that import primary commodities, as well as on the Gulf economies themselves, given the difficulty of attracting scarce supplies or protecting households and businesses from the impacts of these shocks. The organization presented two potential scenarios for the global economy over the next eighteen months, primarily linked to the evolution of the energy crisis, the duration of the conflict, and the success of efforts to reach a permanent settlement. In the first scenario, termed "Time-Limited Disruption," the organization assumes that disruptions will be significant but temporary. This scenario envisions a gradual decline in energy prices and a return of production and trade in Gulf economies to pre-crisis levels, starting from the third quarter of 2026. According to this scenario, global growth will slow from 3.4% in 2025 to 2.8% in 2026, before rising to 3.1% in 2027. Annual inflation rates in G20 countries are expected to increase to 4% during 2026, compared to 3.4% in 2025, then decline to 3.1% in 2027 as energy and food price pressures subside. The organization noted that interest rates would remain largely stable during the current year in most major economies, with underlying price pressures remaining under control. Furthermore, the fiscal stance of governments is expected to remain broadly neutral in the near term. The second scenario, named "Prolonged Disruption," assumes the continued disruption of energy production and exports in Gulf economies until the second half of 2027, with increased probabilities of significant shortages in energy and agriculture- and industry-related products from the region. Under this scenario, global growth would decline to 2.1% in 2026 and then to 1.8% in 2027, potentially pushing a number of economies to the brink of or into recession, and raising global unemployment rates. The organization also projected that global inflation would rise by an additional 0.4 percentage points in 2026 and 1.3 percentage points in 2027 compared to the baseline scenario, with Asian economies facing the greatest losses due to their heavy reliance on energy supplies from the Middle East. The OECD maintained that central banks are required to remain vigilant regarding inflation risks and economic and financial developments. It affirmed that the current rise in energy prices could be overcome if inflation expectations remain stable, but it might necessitate additional monetary tightening if price pressures broaden or growth slows sharply. It also urged governments to direct support measures to the most affected groups by rising energy prices, while preserving necessary incentives for rationalizing consumption and diversifying energy sources. It warned that untargeted support, tax cuts, and price caps could lead to greater fiscal burdens and weaken incentives to reduce energy consumption. The organization emphasized that strengthening energy security, diversifying its sources, and improving its efficiency are urgent priorities. It noted that international coordination on strategic energy reserves and demand-reduction measures could alleviate the effects of supply disruptions in the short term. The OECD further stressed the importance of avoiding new trade restrictions, promoting dialogue among nations to de-escalate trade tensions, improving the investment environment and productivity, in addition to implementing structural reforms that support sustainable growth and enhance economies' ability to withstand future shocks. The organization's forecasts for advanced economies showed a slowdown in U.S. growth to 1.8% in 2026 before reaching 2% in 2027. The Eurozone economy is expected to grow by 0.8% in 2026 and 1.2% in 2027, while China's growth is projected to rise to 4.3% in 2027 after 4.5% in 2026. The organization also predicted that global trade growth would reach 3.1% in 2026 compared to 5% in 2025, before declining to 2.9% in 2027, directly reflecting the conflict's repercussions on supply chains and international trade flows.