The World Bank released its Global Economic Prospects report on June 11, warning that the Middle East conflict could push global economic growth to its lowest level since the COVID-19 pandemic. Specifically, the institution slashed its 2026 global growth forecast to 2.5%, down from the 2.9% projected in January. The primary reasons cited are surging energy prices, rising inflation, and higher borrowing costs.
According to the report, the conflict remains at risk of reigniting as the fragile ceasefire between the US and Iran faces challenges from both sides. Iran has closed the Strait of Hormuz – a vital artery for oil and gas shipments – in retaliation for hostile actions by the US and Israel, putting immense pressure on global energy and goods supply chains.
The World Bank estimates that Brent crude, the international oil benchmark, will average $94 per barrel this year, a 36% increase from last year. Fertilizer prices are also expected to rise significantly, driving up food costs. Overall, the closure of this strategic route will push global inflation to 4% this year, compared to 3.3% last year.
The report warns that if supply disruptions worsen, global growth could fall as low as 1.3% and inflation could rise to 4.4%. The sharpest declines are expected in developing countries, which are the most vulnerable to shocks from the conflict.
The World Bank has also downgraded growth forecasts for two-thirds of countries since January. Global growth is expected to improve to 2.8% by 2027, but that remains 0.4 percentage points below the average of the 2010s. The report notes that excluding China and India, developing countries have made little progress in closing per capita income gaps with wealthy nations over the past decade.
World Bank President Ajay Banga commented: “Developing countries have faced a series of challenges over the past decade. The impacts vary by country, but the basic equation is the same: protecting people and maintaining stability today, without sacrificing growth and jobs tomorrow.”
The World Bank has pledged to support any developing country affected by the Middle East conflict, with a budget of up to $60 billion. The institution said it could increase support to $100 billion if the conflict persists.
