The Organisation for Economic Cooperation and Development (OECD) has revised downward its global economic growth projections, citing the escalating economic impact of the ongoing conflict between the United States and Iran. The organisation warned that the outlook could deteriorate further if a lasting peace agreement is not achieved in the near future.
According to the OECD’s June Economic Outlook, global economic growth is expected to ease from 3.4% in 2025 to 2.8% in 2026, before improving to 3.1% in 2027. These projections are based on the assumption that current disruptions to global energy markets begin to subside by mid-year and that stability returns to key shipping routes.
The forecast is built on a scenario in which the conflict-related disruptions remain temporary, with maritime traffic through the Strait of Hormuz restored following a peace settlement. However, the OECD cautioned that prolonged disturbances affecting shipping lanes and energy infrastructure across the Gulf region could significantly alter the outlook.
Under a more severe scenario, global growth could slow to 2.1% in 2026 and further decline to 1.8% in 2027. Such a downturn could push several economies into recession or leave them on the brink of economic contraction.
The report highlights the closure of the Strait of Hormuz and damage to energy facilities in the Gulf as major drivers behind soaring energy costs. Rising prices have also increased the cost of fertilisers and other critical industrial inputs, creating broader challenges for global supply chains. The OECD noted that the economic consequences of the conflict are likely to persist even after hostilities end.
Economic impacts are expected to vary widely across countries. While energy shortages are projected to place considerable pressure on Asian economies, nations such as Japan and South Korea are considered better positioned due to their substantial strategic energy reserves. Other countries, including India, have already begun implementing measures to ration gas consumption.
The OECD said a durable peace settlement could help contain the conflict’s economic fallout by easing pressure on energy markets and reducing disruptions to global trade. It warned that extended disruptions would lead to mounting economic and social costs worldwide.
In the pessimistic scenario, global inflation is projected to increase by 0.4 percentage points in 2026 and by 1.3 percentage points in 2027. Higher inflation, combined with weaker economic activity, is expected to result in rising unemployment and reduced investment levels. Energy-intensive sectors, including artificial intelligence infrastructure and data center development, could face significant setbacks. Financial markets may also experience heightened volatility as commodity prices remain elevated while consumer demand weakens.
Developing economies are expected to face the greatest challenges due to limited energy reserves, greater dependence on food and energy imports, weaker fiscal resources, fragile currencies, and less-developed social protection systems.
Despite the gloomy outlook, AI remains one of the few areas offering potential support for economic growth. The OECD noted that continued investment by major technology companies could contribute to stronger productivity and income growth. GDP per capita growth could rise by an average of 0.4% across G20 economies and by as much as 0.9% in the United States if AI-related investments continue at current levels.
However, the benefits associated with AI expansion are heavily dependent on stable energy supplies and lower energy costs, given the substantial power requirements of data centers and advanced computing infrastructure.
The weaker growth outlook presents additional challenges for central banks already attempting to balance sluggish economic activity with persistent inflationary pressures.
The OECD also emphasised that the crisis has exposed the vulnerability of the global economy to disruptions at critical trade chokepoints. Strengthening supply chain resilience and diversifying energy sources were identified as essential long-term priorities.
In the short term, the organisation suggested that coordinated international efforts, including the use of strategic energy reserves and temporary measures to curb demand, could help alleviate supply shortages. At the same time, it underscored the urgent need for greater investment in reducing dependence on imported fossil fuels and accelerating energy diversification.
