OECD warns of global slowdown as U.S.-Iran war stymies economic growth prospects

• Global growth projected to slow from 3.4% in 2025 to 2.8% in 2026 under a time-limited disruption scenario, but could fall to 2.1% in 2026 and 1.8% in 2027 if energy infrastructure damage and Strait of Hormuz disruptions persist
• Worst-case scenario sees global inflation rising by 0.4 percentage points in 2026 and 1.3 percentage points in 2027, with unemployment increasing and investment in energy-intensive sectors like AI weakening significantly
• Crisis exposes vulnerability to single chokepoints like the Strait of Hormuz and will hit developing economies with limited energy reserves especially hard, complicating central bank efforts to manage growth and inflation

OECD Slashes Global Growth Outlook Amid U.S.-Iran War

The Organisation for Economic Cooperation and Development (OECD) has significantly cut its global growth forecast in its June Economic Outlook, citing severe economic disruptions from the U.S.-Iran conflict and energy market shocks.

Key Projections:

Under a limited-disruption scenario, global growth is expected to slow from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027. This assumes a peace agreement is reached and disruptions to the Strait of Hormuz are resolved by mid-2026.

However, in a prolonged-disruption scenario with continued shipping and energy infrastructure disruptions through 2027, global growth would plummet to just 2.1% in 2026 and 1.8% in 2027—pushing some economies into or near recession.

Economic Impacts:

The Strait of Hormuz shutdown and Gulf energy infrastructure damage have driven energy prices sharply higher, along with fertilizer and industrial input costs. In the worst-case scenario, global inflation would rise by 0.4 percentage points in 2026 and 1.3 percentage points in 2027. Unemployment would increase, investment would weaken (particularly in energy-intensive sectors like AI), and financial market repricing risks would escalate.

Regional Vulnerability:

OECD Chief Economist Stefano Scarpetta warned that developing economies with limited energy reserves face especially severe consequences. The crisis exposes dangerous dependencies on single chokepoints and underscores the urgent need for supply chain resilience and energy diversification.

Policy Implications:

The situation complicates central bank challenges already balancing weak growth and inflation. The OECD recommends emergency demand-restraint measures, coordinated release of strategic energy reserves, and accelerated investment in reducing fossil fuel import dependency.