OECD predicts spate of recessions globally if Iran conflict drags into 2027

Cars and motorcycles queue for petrol in Dhaka, Bangladesh, amid concerns over a fuel shortage caused by war in the Middle East. Photograph: Suvra Kanti Das/Abaca/ShutterstockView image in fullscreenCars and motorcycles queue for petrol in Dhaka, Bangladesh, amid concerns over a fuel shortage caused by war in the Middle East. Photograph: Suvra Kanti Das/Abaca/ShutterstockOECDOECD predicts spate of recessions globally if Iran conflict drags into 2027 Policy forum lays out ‘prolonged disruption’ scenario in which world’s GDP falls to 2.1% this year from 3.4% in 2025

If the Middle East conflict drags on into next year it would hit global growth hard, driving some economies into recession and causing energy shortages, according to forecasts from the Organisation for Economic Co-operation and Development.

In its latest Economic Outlook, the Paris-based club of industrialised countries lays out a “prolonged disruption” scenario, in which there is no agreement between the US and Iran until 2027.

It forecasts such a scenario would reduce global GDP growth to 2.1% this year, from 3.4% in 2025, “pushing some economies into or close to recession” – with emerging economies hit hardest.

Oil and gas shortages would result in “enforced rationing” of energy for businesses, while “the price of fertilisers and other affected inputs into industrial processes, such as sulphur and helium, would also rise as supply is curtailed”.

It would create headaches for policymakers, who could face recession if they raised interest rates too rapidly to see off rising inflation risk as energy and food prices surge.

The analysis suggests the long-running US AI boom could be at risk, too: “The significant energy price shocks or energy shortages associated with the prolonged disruption scenario would increase datacentre operating costs and constrain the supply of critical hardware used in AI systems.”

This could “further reduce the capacity and incentive for AI investment, leading to notably weaker growth in those economies currently being boosted by AI-related investment and production”, it says.

Donald Trump has repeatedly suggested in recent weeks that a deal with Tehran is imminent, helping to calm oil markets, but nothing has so far materialised. Talks are now suspended, with Iran refusing to take part in discussions while Israel continues attacking Hezbollah in Lebanon.

The chokehold on the crucial strait of Hormuz has been squeezing international oil supplies for more than three months, driving up prices and prompting emergency measures across scores of countries.

In a foreword to its twice-yearly snapshot, the OECD’s chief economist, Stefano Scarpetta, described the Iran conflict as “the dominant force shaping the global economic outlook”.

In the “prolonged disruption” scenario, he said: “The consequences would be global but could prove especially severe for developing economies with limited energy reserves, higher shares of energy and food in household consumption, constrained fiscal capacity and weak social safety nets, low private savings buffers and more fragile currencies.”