The world economy survived the shocks of the Ukraine-Russia conflict, which has had limited impact on economic growth. But the escalation of hostilities in the Middle East has transformed what had been, until early 2026, a surprisingly benign outlook into a far more uncertain one. It has created the ultimate test for how resilient the world economy really is.

Amid stalled ceasefire negotiations, the US president, Donald Trump, has threatened a blockade of vessels transiting through Iranian ports in the strait of Hormuz. This sent oil prices back up over US$100 (£74) a barrel. Meanwhile the current ceasefire is looking very shaky.

The key economic factor in this conflict is straightforward: the near-halting of shipments through the strait and the closure of energy infrastructure.

These elements have disrupted roughly one-fifth of global oil production and nearly another 20% of the world’s trade in liquefied natural gas (LNG). With little spare capacity elsewhere, the result has been a sharp and rapid surge in energy prices.

Forecasts of price surges for benchmark oils

This is a classic energy price shock. The consequences for the world economy are predictable in direction but uncertain in magnitude. The latest interim economic outlook from the Organisation for Economic Co-operation and Development (OECD) projects global GDP growth at 2.9% in 2026. This is almost unchanged from its forecast before the war started.

But the OECD report also highlights........

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