OECD warns prolonged Middle East conflict could push economies into recession

Economists at the Organisation for Economic Co-operation and Development (OECD) note that the global economy entered 2026 on a relatively strong footing, supported by investment in artificial intelligence, favourable financial conditions and easing trade tensions. However, the outlook deteriorated sharply following the escalation of the conflict in the Persian Gulf.

Disruptions to shipments through the Strait of Hormuz and damage to energy infrastructure have driven up prices for oil, natural gas, fertilisers and other strategic commodities. This has intensified inflationary pressures, weakened consumer and business confidence, and weighed on economic activity worldwide.

Under the OECD’s baseline scenario, global economic growth is projected to slow to 2.8% in 2026 from 3.4% in 2025 before recovering to 3.1% in 2027. Inflation across G20 economies is expected to rise to 4% in 2026 from 3.4% a year earlier.

However, the OECD warns that a prolonged crisis could have far more severe consequences.

“Should the disruptions persist well into 2027, global growth is expected to slow significantly, to just 2.1% in 2026 and 1.8% in 2027, potentially pushing some economies into or close to recession,” the report says.

Developing economies that rely heavily on imported energy are identified as particularly vulnerable. According to the OECD, these countries have the least capacity to absorb higher energy and food costs.

The report notes that the Persian Gulf economies play a critical role in the global economy. They account for a significant share of global supplies of oil, liquefied natural gas, sulphur, fertilisers, aluminium and helium, the latter widely used in semiconductor manufacturing and other high-tech industries.

Between February and April, global oil supply fell by around 13.5%, while oil production in Gulf economies declined by 45%. Exports of liquefied natural gas from the region have largely halted following damage to production facilities, particularly in Qatar.

The OECD also warns of risks to global food markets. Gulf economies account for a significant share of global supplies of sulphur, ammonia and urea used in fertiliser production. According to the organisation, disruptions in these supplies could eventually affect agricultural output and food prices.

“The longer the crisis persists, the greater the chance that shortages begin to impact across a range of supply chains, as substitutes are not readily available for many products,” the report says.

Rising prices are already beginning to affect the global economy. Gas prices in Asia have surged by more than 70% compared with late February, while oil, diesel, fertilisers and chemical feedstocks have also become significantly more expensive. At the same time, global supply chain disruptions have intensified. Maritime traffic through the Strait of Hormuz remains heavily restricted, while commercial air traffic across the region remains well below pre-conflict levels.

The OECD also highlights potential risks to the development of artificial intelligence. Higher energy costs and disruptions in supplies of specialised materials could slow investment in data centres and other AI-related infrastructure projects.

OECD Chief Economist Stefano Scarpetta said the crisis had exposed the vulnerability of the global economy to disruptions in a single strategic transport corridor.

“The vulnerability of our economies to one single chokepoint demonstrates the need for intensifying efforts to strengthen the resilience of supply chains, particularly to diversify energy supply, and to improve energy efficiency,” he said.

The OECD urges governments to avoid broad and costly energy subsidies and instead focus support on the most vulnerable households and viable businesses.

Earlier, Qazinform News Agency reported that the World Economic Forum had also warned about the growing risks associated with disruptions in the Strait of Hormuz. According to the May edition of the WEF’s Chief Economists’ Outlook, 89% of chief economists expect global economic growth to weaken over the next 12 months, while 21% foresee a significant deterioration.