Key Points:
- The World Bank dropped its 2026 global growth forecast to 2.5 percent, the lowest level since the pandemic.
- The prolonged closure of the Strait of Hormuz represents the biggest energy supply shock in more than 50 years.
- Skyrocketing energy and fertilizer costs threaten to push global headline inflation to 4 percent this year.
- The development bank is mobilizing up to $100 billion in emergency liquidity for the hardest-hit countries.
The ongoing military conflict in the Middle East has dealt the global economy its most severe blow since the COVID-19 pandemic. According to the newly released half-yearly Global Economic Prospects report, the economic fallout from the war is dragging down international growth and threatening to tip dozens of vulnerable nations into years of stagnation. The sudden disruption to major trade networks has forced a major reassessment of international market stability, with economists warning that the global economy has downshifted sharply.
The multilateral development organization expects worldwide economic growth to slow to just 2.5% this year, down from 2.9% in 2025. This projected expansion represents the weakest global performance since the severe recession of 2020. The report paints a particularly grim picture for the near term, having downgraded growth forecasts for two-thirds of the world’s economies. Under an even more severe downside scenario—where energy supply disruptions intensify and trigger substantial stress in global financial markets—worldwide growth could plunge to a catastrophic 1.3%.
At the heart of the current crisis is the prolonged near-closure of the Strait of Hormuz, which the organization has characterized as the biggest energy supply shock in more than 50 years. This vital shipping blockade has sent commodity prices skyrocketing, with Brent crude oil now projected to average $94 per barrel this year—a massive 36% increase over 2025. This energy price spike has fueled a fresh wave of global inflation, with global headline inflation expected to climb to 4.0% this year, up significantly from 3.3% last year.
Beyond fuel prices, the maritime bottleneck has triggered severe disruptions in the global agricultural supply chain. Disrupted supplies of raw inputs via the Persian Gulf have sent fertilizer prices soaring, with average fertilizer costs expected to jump by up to 38% this year. Economists warn that these rising input costs will inevitably trigger a secondary wave of food price inflation, exacerbating food insecurity and placing immense strain on low-income households that rely on imported food.
The economic pain is highly unequal, hitting developing and emerging market economies far harder than wealthier nations. The report slashes the 2026 growth forecast for developing nations by 0.4 percentage points to a post-pandemic low of 3.6%. Excluding the resilient markets of India and China, per capita incomes in these nations have consistently lost ground relative to advanced economies. World Bank President Ajay Banga warned that barring a major turnaround, the 2020s will ultimately go down in history as a lost decade of income convergence for the developing world.
Geographically, the nations closest to the war zone face the most devastating impacts. Oil-exporting Gulf countries like Kuwait, Iraq, and Qatar will see their growth plummet from 3.9% last year to near-zero levels this year. Across the broader Middle East, North Africa, Afghanistan, and Pakistan region, growth has been slashed by 2.7 percentage points to just 1.6%. Meanwhile, Chief Economist Indermit Gill noted that South and Southeast Asian nations are suffering heavily from the shock of elevated mineral and fuel import prices, which are draining their foreign currency reserves.
In contrast to the widespread downgrades, the United States economy has remained remarkably resilient. The organization left its growth forecast for the world’s largest economy unchanged at 2.2% for this year, up slightly from 2.1% last year. As a major energy producer, the domestic U.S. economy remains insulated from import shocks. It continues to benefit from major tax cuts and a booming wave of investment in artificial intelligence. However, ordinary consumers still face frustration from elevated gasoline prices at the pump.
To help stave off an outright humanitarian crisis, the multilateral lender has announced an aggressive financial aid package. The organization is making up to $60 billion in emergency liquidity immediately available to the hardest-hit developing nations. Furthermore, the bank is prepared to scale up this supportive funding to up to $100 billion over the next 15 months if the geopolitical crisis deepens. This massive mobilization of capital aims to protect essential services, provide public safety nets, and prevent localized recessions from spiraling into systemic defaults.
