Under a “prolonged disruption” scenario in which war in the Middle East continues into 2027, the OECD predicts global growth will slow from 3.4% in 2025 to 2.1% in 2026, and 1.8% in 2027. This will leave “a lasting mark on many countries, especially in Asia, Europe and developing economies most vulnerable to the energy and food price shock,” the global policy forum said in its latest Economic Outlook, released June 3.

“The evolving conflict in the Middle East has become the dominant force shaping global economic prospects, prompting an energy shock that is driving inflationary pressures and is projected to have adverse impacts on growth, the report said.

The OECD (Organisation for Economic Co-operation and Development) presents two potential scenarios for resolution of the U.S.-Israel conflict with Iran. The first is a time-limited disruption scenario, in which a lasting peace deal is reached soon, and energy production and trade in the Gulf economies progressively return to pre-conflict levels starting mid-2026, leading to a gradual unwinding of the disruptions. In that case, global growth is projected to fall from 3.4% in 2025 to 2.8% in 2026 before picking up to 3.1% in 2027.

The other is a prolonged disruption scenario, in which the current disruptions to energy production and exports in the Gulf economies persist well into 2027. This will lead to persistent higher energy prices, intensifying risks of supply shortages and a tightening of global financial conditions, all of which carry broader and more long-lasting consequences for the global economy, the OECD said. In that case, global growth slows to 2.1% in 2026 and 1.8% in 2027.

“The global economy entered 2026 with robust momentum, but the outlook has weakened significantly since the start of the conflict in the Middle East, with effects likely to be felt for some time. The longer the disruptions last, the larger the economic and social costs become,” OECD Secretary-General Mathias Cormann said.

The OECD also warned that inflationary pressures are rising in both advanced and emerging market economies, with the energy shock causing higher commodity prices, as well as indirect effects that are boosting prices across the economy, notably for agricultural inputs and food.

In the time-limited disruption scenario, annual consumer price inflation in the G20 economies is collectively expected to rise to 4.0% in 2026, from 3.4% in 2025, before easing to 3.1% in 2027 as energy and food price pressures fade. Inflation would rise significantly higher in the prolonged disruption scenario.

“Governments have a range of near-term options for mitigating the effects of the energy supply crunch, particularly on the most vulnerable households and small firms,” OECD Chief Economist Stefano Scarpetta said. “But this crisis also demonstrates that the need to wean our economies off the dependency on fossil fuel imports is increasingly urgent.”