OECD warns of global slowdown as Iran war stymies growth prospects

The Organisation for Economic Cooperation and Development has slashed its global growth outlook, warning that the economic damage from the U.S.-Iran war could dramatically worsen unless a durable peace settlement is reached quickly.

In its June Economic Outlook, the OECD said global growth is now expected to slow from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027 — should the current energy price shock start easing by the middle of this year.

But that’s assuming a time-limited disruption scenario in which a peace agreement is reached and current disruptions to the Strait of Hormuz are swiftly resolved, said Stefano Scarpetta, the OECD’s chief economist.

A worse scenario, in which the disruptions to shipping and energy infrastructure continue well into 2027, would see global growth fall sharply to just 2.1% in 2026, and 1.8% in 2027.

That would tip some economies into, or close to, recession, Scarpetta warned.

The OECD’s study explores how the Strait of Hormuz shutdown, coupled with energy infrastructure damage throughout the Gulf, has sent energy prices soaring, and pushed up the costs of fertilizers and other key industrial inputs. It noted how the consequences of the war between the U.S. and its allies and Iran are likely to be felt for some time, even after any resolution is found.

Scarpetta said that a durable settlement to the current conflict would not only bring relief to the region but also “lay the groundwork for a resolution to the disruptions it has caused to the global economy.”

“The longer the disruptions last, the larger the economic and social costs become,” he said in the report.

In the worse-case scenario, global inflation is expected to rise by 0.4 percentage points in 2026, and 1.3 percentage points in 2027.

“Unemployment would rise and investment — including in energy-intensive AI — would weaken significantly, with increasing risks of financial market repricing… with upside pressures from elevated commodity prices partially offset by weaker final demand,” Scarpetta said.

“The consequences would be global but could prove especially severe for developing economies with limited energy reserves, higher shares of energy and food in household consumption, constrained fiscal capacity and weak social safety nets, low private savings buffers and more fragile currencies.”

The downward trajectory will further complicate the challenge for global central banks already grappling with weaker growth and inflationary pressures, he added.

The crisis also highlights the vulnerability of global economies to one single chokepoint, and underlines the need to strengthen the resilience of supply chains and diversify energy supply, the OECD report said.

“In the near-term, emergency demand-restraint measures and international coordination of strategic energy stocks can help mitigate some of the effects of the supply crunch, but the need to invest more to wean us off the dependency on fossil fuel imports is more urgent than ever.”