A shock to the world economy: The Iran war matters for the global economy, but how much?
Oil prices have surged over 10%; Asian and European natural gas prices have jumped over 50%; Treasury yields are up; and the S&P 500 briefly fell by 3%.
A quick peace deal could lead the world’s economies to brush off the conflict, but an extended conflict could significantly harm them.
Our panelists’ reaction: Our panel of economists spans more than 300 institutions—including banks such as Goldman Sachs and JPMorgan and consultancies such as the Economist Intelligence Unit and Oxford Economics—and they are already redrawing their forecasts in light of the war.
We have argued in past newsletters that the rising uncertainty that is now affecting the global economy means that economic forecasters need to be not only accurate, but also agile. Firms are increasingly using cloud-based AI forecasting tools to plan production at a granular level—Toyota, one of our clients, is among those adopting such approaches.
Below, you can find a selection of our panelists’ latest analysis and forecasts, which our clients can find updated on a daily basis on our newly revamped data platform, FocusAnalytics. If you are not a client, you can access a free trial here.
Commodities
Figure 1 – The evolution of the Consensus Forecast for average Brent prices in Q2. Source: FocusAnalytics.
The main direct impact of the conflict is, for now, the closure of the Strait of Hormuz. As analysts at S&P Ratings explain:
“The strategic importance of the strait cannot be overstated. Currently, 20% of the world’s oil consumption and approximately 20% of global LNG supply (mainly from Qatar but also including the UAE) passes through the Strait of Hormuz […]. All exported oil from Iran, Kuwait, and Qatar is shipped through the strait. Iraq exports 97%, Saudi Arabia 89%, and the UAE 66% of their respective total oil exports through the strait […]. If the strait were to close for an extended period of time, it would be among the greatest supply shocks in history, and the price of oil undoubtedly would escalate well over $100. Given the importance of the strait and the substantial U.S. military presence in the region, it’s highly doubtful the strait could be closed for an extended period of time.”
Analysts at Goldman Sachs have hiked their forecast for European natural gas in April by 53% and in Q2 by 25%:
“As NW European LNG imports start to drop as a result of this shock […] we raise our Apr26 TTF forecast to 55 EUR/MWh ($19/mmBtu) from 36 EUR/MWh previously, above forwards at 43 EUR/MWh. Our average 2Q26 TTF forecast is 45 EUR/MWh (from 36 EUR/MWh). We also raise our prompt Apr26 JKM forecast, to $20/mmBtu (from $11.90).”
Goldman Sachs has also hiked its Q2 oil price forecasts by 15%:
“We are raising our 2026Q2 average oil price forecast for Brent by $10 to $76/bbl (vs. $66 prior) and by $9 for WTI to $71 (vs. $62) for two reasons. First, we assume that 5 additional days of very low (15% of normal) Strait of Hormuz (SoH) exports followed by a gradual recovery over 28 days will lead in March to large OECD inventories declines and 200mb of estimated Middle Eastern crude production losses as storage approaches congestion. Second, we also assume that lingering geopolitical uncertainty will continue to support the risk premium.”
Marc Ercolao shares TD Economics’ optimistic scenario:
“In a de-escalation scenario, swift military action limits further retaliation and avoids major infrastructure damage. In this case, oil prices could peak quickly at current levels and retrace much of their recent gains, with WTI falling back toward $60/bbl within a couple of weeks.”
Global
Marc-Antoine Dumont, Senior Economist at Desjardins, and Randall Bartlett, Deputy Chief Economist, commented:
“The implications for the global economy will depend largely on the duration and severity of the crisis. The real GDP of major advanced and emerging economies is far less dependent on oil than during past crises. That said, Asia and China remain more exposed to the consequences of a prolonged disruption in Middle Eastern oil supply. On one hand, the US is now a net exporter of petroleum products, and a sustained increase in prices could even have positive spillovers for investment in the resource sector, which has struggled in recent years.”
Joseph Lupton, Bruce Kasman and Jahangir Aziz, analysts at JPMorgan, said:
“We are considering an alternative macroeconomic scenario that sees oil prices remaining elevated through 1H26 before falling back to fundamental value around $60 through 2H26. Under a persistent risk premia scenario in which Brent crude oil prices remain at $80bbl through midyear, our model estimates point to 1H26 global GDP growth being depressed by an 0.6%ar, with 1H26 global CPI inflation being lifted by more than 1%ar. This scenario represents a modest macroeconomic shock — one that is unlikely to pose a threat to the global expansion or materially alter the path of global monetary policy.”
Central banks and interest rates
Nomura economists said:
“We expect the ECB to look through recent market moves as much as possible and instead to continue to focus on its end-of-horizon HICP inflation forecast to guide its monetary policy decision-making. The rise in crude oil and natural gas prices will raise the ECB’s HICP inflation forecast profile, though the HICP inflation downside surprise in January relative to the ECB’s expectation will partly offset this. The key issue for the BoE is whether the potential inflation impact of higher oil prices will prevent a March rate cut. We still expect a cut but flag that the decision is now a very close call and will likely depend on how oil prices develop in the coming weeks.”
ING’s Chris Turner explains how the war is affecting the short-term outlook for U.S. interest rates:
“As to central banks, we have been writing this week about how the inflationary risk of the energy shock is re-pricing the short-end of the curve. That trend briefly reversed yesterday after equity losses intensified. But unless we see another major equity sell-off today, the hawkish re-pricing of the short-end of the curve looks the dominant theme. That is a dollar positive. We see a few inputs into this theme today. Assuming the monthly ADP release comes in near +50k, investors will assume that the Fed has been right to assume that downside risks to the labour market have abated. We will then be looking at the prices paid component of the ISM services index. A high reading there can support the dollar. And then tonight we’ll see the Fed’s Beige Book ahead of the 18 March FOMC meeting. Any signs that price pressures remain sticky could see the market further scaling back expectations for two Fed cuts this year. 45bp of easing is currently priced this year.”
Exchange rates
HSBC’s Paul Mackle said:
“Considering the ongoing tensions in the Middle East, the USD’s resilience should come as no surprise. This has been our central case when markets first opened on Monday. The conditions were ripe for a USD bounce given signs of overextended short positions having been established since the start of the year. It is well understood what should happen next if the oil price goes much higher alongside rising cross-asset volatility – the USD would become even stronger.”
JPMorgan analysts commented:
“The primary vulnerability in our recommended portfolio is now via EUR/USD longs, as a sustained rise in energy prices could lead to drawdowns. The important thing to note for EUR/USD is that the outcomes will depend not just on oil but also gas prices where TTF is one of the main measures; both commodities are higher in the aftermath and are captured in the JPMaQS commodity terms of trade measure. The risk scenario of Brent heading to $100-120/bbl would be consistent with sharp declines of 3-5.5pts in the EU terms of trade vs. the US. This would imply EUR/USD in the 1.10-1.13 range in the event it is realized and sustained.”
Asia
HSBC’s Chief Asia Economist Frederic Neumann commented:
“Faltering oil exports by Iran will primarily affect China, which bought around 80% of [the] country’s exports according to data cited by Reuters (January 13, 2026) […]. China will thus need to divert purchases elsewhere, for example to Russia, though this will probably not suffice, leaving Chinese importers tapping global markets. More broadly, with a closing of the Strait of Hormuz, a persistent rise in the global price of crude will impact energy-hungry Asian economies through a higher import bill (a terms of trade shock that diminishes national income). […] Thailand and Korea stand out, though in most markets the net import bill is at least 2% of GDP, with even a 10% rise amounting to incremental costs of 0.2% of GDP, a small but not negligible number.”
DBS analysts said:
“Amongst the ASEAN-6 countries, the net oil trade balance is most adverse in Thailand, Malaysia, and Vietnam (as % of GDP), with the pass-through to price pressures most material in Thailand and Philippines. Additionally, while less strategic, Thailand and Singapore are top LNG buyers in the region, but with a well-distributed supplier mix, especially in Singapore. Much of the region will likely monitor developments in the Middle East with trepidation. THB, MYR, and SGD are down more than 1% this week, and regional currencies might underperform if US dollar stays bid. Regional central banks are unlikely to act pre-emptively on policy, preferring to remain on hold while maintaining a keen watch on the domestic currency and bond yield movements.”
On the looming Trump-Xi summit, EIU analysts concluded:
“We do not expect the summit between the US president, Donald Trump, and his Chinese counterpart, Xi Jinping, scheduled for March 31st-April 2nd in Beijing, to be called off because of the conflict […]. That said, there is an increasing likelihood that the summit’s outcome will be underwhelming. The Iran conflict is set to feature prominently in the talks, undermining an otherwise more amicable atmosphere […]. Media reports also suggest that US preparation has lagged behind, potentially precluding the conclusion of agreements.”
The Middle East
Fitch Ratings analysts delved into the impact of the war on the economies of the Gulf region:
“There is still likely to be some near-term hit to oil and gas activity, particularly for Bahrain, Kuwait and Qatar, which lack supply routes that can bypass Hormuz, and Iraq, whose exports are heavily reliant on the route […]. The conflict will have a near-term effect on non-oil economic activity. Much regional air travel has been suspended, consumer activity is likely to have slowed and risk perceptions could have a lingering impact on tourism. Fitch assumes the effect on economic growth will be temporary, but there may be longer-term damage to those parts of the region that position themselves as havens for international businesses and individuals. An outflow of expatriates could put pressure on some GCC housing markets.”
Europe
Goldman Sachs analysts have grown more pessimistic on the European economy:
“We estimate that our new energy price forecasts will lower growth by 0.1-0.2pp for the Euro area, the UK, Sweden and Switzerland this year. But growth could turn out substantially weaker if energy prices were to follow our downside scenarios [of an extended war]. In contrast, Norway is an energy exporter and its economy is likely to benefit from higher prices. We are lifting our headline inflation forecast by around 0.4pp over the year across countries. The effects on core inflation are likely to be muted under our new energy price forecasts. But sharper and more persistent energy price increases could entail materially higher inflation—including for core inflation—in the severe downside scenario. We maintain our forecast for unchanged ECB policy in our updated baseline forecast, as growth is only slightly weaker and inflation remains close to target. We similarly make no change to our forecast that the Riksbank and the SNB stay on hold this year. But we now believe that the BoE is more likely to wait until April with the next Bank Rate cut.”
Economists at JPMorgan think the impact of the war on European inflation will be limited for now:
“Looking ahead, the sharp rise in energy prices has been largely limited to the short-term and only lifts our 2026 headline inflation forecast 0.1%-pt to 2.0%oya. Any pass-through to core inflation will be more modest, and we still expect core inflation to decline toward 2% by the middle of the year.”