OECD: Prolonged Middle East Energy Disruption Could Trigger Global Recession

The Organization for Economic Cooperation and Development (OECD) warned Wednesday that a prolonged disruption of energy supplies from the Middle East due to the ongoing Iran war would severely impact the global economy, potentially pushing some countries into recession and spreading inflation and higher unemployment. The report, released from the OECD's headquarters in Paris, highlights that Asian economies dependent on crude oil, fuel, and natural gas from the Persian Gulf would be hardest hit, as supplies have been largely choked off by the closure of the Strait of Hormuz due to the risk of Iranian attack.

Poorer countries, where people spend a larger share of their incomes on fuel and food, would also be severely affected. Under the OECD's prolonged disruption scenario, global growth would slow from 3.4% last year to 2.1% this year and 1.8% in 2027, potentially pushing some economies into or close to recession.

In contrast, under a time-limited disruption scenario where energy production and shipments from the Gulf begin to return to pre-war levels in the middle of this year, growth would slow to 2.8% this year and rebound to 3% in 2027. 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." He warned that government spending aimed at relieving energy costs must be targeted at those most in need and temporary, to avoid excess government debt and preserve incentives to save energy.

Despite a declared ceasefire in the war between the US and Iran, the ongoing risk to shipping means traffic through the Strait of Hormuz has dwindled by more than 90% compared to before the war, disrupting about a 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 a billion people in poorer countries and small island states that depend on imported fuel, forcing 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 of $3 or less a day.