The Warning Has Become a Reality

The original version of this article described the economic consequences of a US-Iran conflict in the conditional tense. That framing is now obsolete. The war began on February 28, 2026, when the United States and Israel launched airstrikes on Iran. Tehran responded by closing the Strait of Hormuz to hostile shipping, triggering what has since been described as the largest disruption to world energy supply since the 1970s energy crisis and one of the most severe shocks in the history of the global oil market.

On June 11, the World Bank published its biannual Global Economic Prospects report, converting months of speculation into hard data. The Washington-based institution cut its global growth forecast for 2026 to 2.5 percent from the 2.9 percent it had predicted in January, citing surging energy prices, rising inflation, and higher borrowing costs. That is the lowest rate of expansion since the pandemic year of 2020.

On July 8, the IMF separately downgraded its own global outlook, citing the energy shock caused by the Iran war. What had been a regional conflict has produced a measurable global slowdown, and the numbers are likely still evolving.

The Strait of Hormuz: How an Energy Chokepoint Became a Macro Risk

The mechanism through which a military conflict in Iran translates into global economic damage runs almost entirely through one geographic feature. The Strait of Hormuz is just 34 kilometres wide at its narrowest point and serves as the main passage for roughly 20 million barrels of oil per day, or about 20 percent of global seaborne oil trade. Shipments from Saudi Arabia, the United Arab Emirates, Iraq, and Qatar depend heavily on this route.

Following the February 28 strikes, the corridor was effectively closed. Iranian forces warned hostile vessels not to transit the strait, and tanker traffic dropped dramatically. Brent crude, which traded around $69 per barrel before the conflict, surged to approximately $120 per barrel in March before easing after a temporary ceasefire.

The disruption also affected fertilizer markets. Around 30 percent of the world’s fertilizer supply passes through the Strait of Hormuz. The closure pushed agricultural input costs sharply higher across Africa, South Asia, and Latin America. US farm diesel prices rose nearly 50 percent from pre-war levels, while several fertilizer products increased by 25 to 50 percent.

World Bank chief economist Indermit Gill warned that if the conflict persisted, food prices would become the next major transmission channel, particularly for North and Sub-Saharan Africa, where food insecurity was already elevated before the latest crisis.

The Ceasefire That Has Not Held

A temporary ceasefire was agreed on April 8, and the US Navy later announced a widened transit route through the strait. However, stability has not returned. Cargo vessels have reported projectile strikes near the Omani coast, and both the United States and Iran have conducted additional military actions since late June.

Brent crude is currently trading around $79 per barrel, well below the March peak but still significantly above pre-conflict levels. The World Bank’s baseline forecast assumes Brent will average roughly $94 per barrel in 2026 and that the worst supply disruptions will ease during the second half of the year. Whether that assumption holds depends largely on the outcome of ongoing ceasefire negotiations in Doha.

Who Is Absorbing the Damage

The World Bank’s regional breakdown shows that the impact is uneven.

Gulf economies, despite being major oil exporters, are experiencing some of the sharpest short-term disruptions because the conflict has interfered with their ability to export energy. Growth in the Gulf is expected to be near zero this year after expanding by 3.9 percent in 2025. Tourism, aviation, and logistics have also been affected. The World Bank expects a rebound toward 5 percent growth in 2027-28 if trade flows normalize.

For developing economies more broadly, the damage is cumulative. Growth is projected to slow to 3.6 percent this year from 4.4 percent in 2025. Many emerging markets never fully recovered from the pandemic, the inflation shock of 2022-23, or the debt pressures that followed. Excluding China and India, per capita incomes across many developing economies are not expected to return to pre-pandemic levels until after 2028.

South Asia is the notable exception. The region is projected to grow by 6.3 percent in 2026, down only modestly from 7 percent in 2025, supported by strong domestic demand in India and some relief from oil prices retreating from their March highs.

The Stagflation Risk

The World Bank’s baseline forecast combines two challenging numbers: global growth of 2.5 percent and headline inflation of around 4 percent in 2026. That combination is not technically stagflation, but it is uncomfortably close. Growth is well below trend, inflation remains above target, and policymakers have limited room to address one problem without worsening the other.

Fiscal space is also much smaller than it was in 2020. Governments that deployed massive pandemic stimulus packages and later funded energy support programs entered 2026 with higher debt burdens and reduced capacity to cushion another shock.

The World Bank’s downside scenario is significantly more severe. If energy disruptions intensify and financial stress spreads, global growth could fall to just 1.3 percent while inflation rises to 4.4 percent. On a population-adjusted basis, that would represent a weaker global performance than the aftermath of the 2008 financial crisis.

Indermit Gill described the broader challenge as one of the densest clusters of global shocks since the 1970s, warning that nearly half of developing economies have failed to narrow the income gap with advanced economies since 2019.

The World Bank Mobilizes Capital

The institution issuing the warning is also deploying resources. The World Bank has made up to $60 billion immediately available to developing countries hit hardest by the crisis, with total support potentially rising to $100 billion over the next 15 months.

The funding is aimed primarily at energy-importing economies in Sub-Saharan Africa and South Asia, where foreign exchange reserves have come under pressure from higher oil prices. The package includes liquidity support, guarantees, and private-sector mobilization instruments for countries with limited borrowing capacity.

Future Outlook: Recovery or Prolonged Disruption

The World Bank’s baseline assumes a recovery beginning in 2027-28 as energy supplies normalize, monetary easing resumes, and trade strengthens. That outlook depends on three conditions: a durable ceasefire, a return of normal traffic through the Strait of Hormuz, and oil prices settling closer to pre-war levels.

None of those conditions is guaranteed. The late-June ceasefire has already been tested by renewed strikes and retaliatory actions. Iran’s insistence that it retains authority over which vessels may safely transit the strait suggests that a geopolitical risk premium could remain embedded in energy markets even if formal hostilities decline.

The IMF’s July 8 downgrade reinforces the same conclusion. Energy prices, trade routes, financial conditions, and food costs are deteriorating simultaneously rather than sequentially, leaving governments and central banks less time to adjust.

What the World Bank’s report ultimately measures is the economic cost of allowing a geopolitical conflict to intersect with the world’s most important energy chokepoint at a moment of limited global resilience. The damage is already measurable. The recovery remains conditional. And the baseline forecast still assumes a peace settlement that has yet to be secured.

All factual claims are based on the World Bank Global Economic Prospects report (June 11, 2026), IMF updates released on July 8, 2026, and reporting from major international news organizations covering the 2026 Strait of Hormuz crisis and global energy markets.

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