OECD: Global Growth Could Fall to 1.8% If Middle East Conflict Extends to 2027
Claire Weston
The OECD warns that if the Middle East conflict drags into 2027, global growth could fall to 1.8% — the century's third-worst year; how long energy supplies stay disrupted now decides whether the world gets a slowdown or a recession.
The OECD drew two paths — how far apart are they?
Under the baseline scenario, energy flows from the Persian Gulf resume later this month and global growth slows from 3.4% in 2025 to 2.8% in 2026 — a deceleration, not a crisis.
Under the downside scenario, the conflict persists through 2027, dragging growth to 2.1% in 2026 and 1.8% in 2027. This means → just one extra year of fighting turns a manageable slowdown into a near-recession.
In plain terms = the fork between the two paths comes down to one variable: whether oil can flow normally through the Strait of Hormuz.
What does a prolonged conflict mean for inflation and rates?
In the baseline, G20 inflation peaks at 4% this year, drops to 3.1% next year, and rates stay flat before cuts begin in 2026 — roughly the "soft landing" markets are pricing in.
In the downside, energy-price spikes add 0.4 percentage points to global inflation in 2026 and 1.3 points in 2027. This means → central banks would not only shelve rate cuts but might be forced to hike policy rates by 50–75 basis points.
The OECD also warns that if financial conditions tighten severely, central banks may need to rethink shrinking their sovereign-bond holdings — or even restart quantitative easing (QE — large-scale government-bond purchases that inject cash into markets). Put simply = the liquidity they spent years withdrawing might have to be pumped back in.
Which major economies can absorb the shock — and which cannot?
The U.S., as a net energy exporter, faces a limited hit: growth edges from 2.1% in 2025 to 2.0% in 2026 and 1.8% in 2027.
The eurozone, far more reliant on imported energy, slows from 1.4% to just 0.8% this year before recovering to 1.2% next year.
China, with large energy reserves, is relatively shielded: growth eases from 5.0% to 4.5% in 2026 and 4.3% in 2027. This reflects a simple rule — each economy's "energy self-sufficiency" determines where it lands in this shock.
Asian economies highly dependent on Middle Eastern energy face the heaviest blow; some could tip into outright recession under the downside scenario.
Why did the EBRD cut its forecasts at the same time?
The European Bank for Reconstruction and Development (EBRD — a development bank focused on emerging economies across Central and Eastern Europe, Central Asia, the Middle East and North Africa) lowered its 2026 regional growth forecast to 3.1%, a full 0.5 percentage points below its February projection.
EBRD chief economist Beata Javorcik said the conflict delivers "a fresh shock to regions already struggling with weak manufacturing and fiscal fragility."
Nearly two-thirds of EBRD-region economies have rolled out fuel-price caps, tax cuts or targeted subsidies — but public finances are under growing strain. This means → emerging-market fiscal buffers are being drained; if the conflict drags on, these countries run out of ammunition first.
What are the chances of peace — and why is this the one variable that matters?
OECD chief economist Stefano Scarpetta was explicit: the downside scenario "is not the most likely outcome," but it shows the cost of a prolonged conflict.
On the ground, the U.S. and Iran exchanged their heaviest fire in months on Tuesday, and diplomatic efforts have stalled — a peace deal remains nowhere in sight.
In plain terms = every economic forecast hinges on a single thread — when the conflict stops. An early end means a slowdown; a late one means a recession. There is not much grey area in between.
Content is for reference only, not financial advice.