Impact of Middle East Tensions on the Global Economy and Commodity Markets | Chapter 5Global Economic Outlook and Key Risks Driven by Middle East Tensions

In mid-June, the United States and Iran signed a memorandum aimed at ending hostilities, and crude oil prices are settling near their pre-event levels. However, restoring normal traffic through the Strait of Hormuz will take time, and sporadic attacks have continued to be reported after the signing.

The IMF presented a baseline outlook assuming production and exports in the Middle East will normalize by mid-2026, alongside a deterioration scenario involving a prolonged conflict and higher energy prices and a severe scenario assuming further damage to energy infrastructure. In all scenarios, global consumer price inflation in 2026 exceeds that in 2025, while real GDP growth is below the 2025 rate.

The OECD presented a short-term disruption scenario in which energy production and maritime and air transport in the Gulf states gradually normalize from the latter half of the April–June 2026 quarter, as well as a prolonged-disruption scenario in which energy production in the Gulf states remains at its March 2026 level through the July–September 2027 quarter.

The outlooks from multiple institutions indicate that even a relatively mild resolution would produce growth below the average of the past 30 years, while a prolonged disruption could result in growth as weak as during the global financial crisis and the pandemic period.

If the recovery of traffic through the Strait of Hormuz is delayed or production and transport facilities in the Gulf states are damaged again, energy shortages will intensify, weighing on corporate production and economic conditions across countries and regions. If soaring fertilizer prices are passed through to food prices, inflation will also broaden.

A renewed rise in financial and capital-market volatility, such as falling share prices and higher long-term interest rates, would affect financing conditions and the economic outlook. In the United States in particular, a substantial equity-market correction could weigh on consumption because the wealth effect from rising share prices is supporting household spending.

Shifts in United States trade and security policies will affect the global economy through trade, defense spending, and international relations. Stronger export controls on critical materials could disrupt international supply chains through shortages of intermediate goods whose supply is concentrated in specific countries.

If China’s property stagnation further weakens demand through investment, consumption, and local-government finances, economic conditions in countries and regions with strong economic ties to China will also deteriorate. Conversely, if the benefits of AI-related investment and exports spread across multiple regions, they could boost the global economy.

The IMF’s intermediate outlook published on July 8 assumes that traffic through the Strait of Hormuz will resume from mid-July and return to its pre-event condition by around March 2027. Under this assumption, the average crude oil price in 2026 is around 89 dollars per barrel, global consumer price inflation is 4.7 percent, and real GDP growth is 3.0 percent.

Under the OECD’s prolonged-disruption scenario, global consumer price inflation rises by around 0.4 percentage points from the short-term disruption scenario, while real GDP growth declines to around 2.1 percent. The scenario assumes that efficiency falls by 2 percent in Asia and 1 percent in other regions because of shortages of raw materials from the Gulf states.

By country and region, both the IMF and OECD expect real GDP growth in the euro area and China in 2026 to be lower than in 2025. The euro area receives a boost from increased defense spending, while conditions in the Middle East, a stronger euro, and fiscal consolidation weigh on growth. In China, adjustment in the property market restrains growth.

For the United States, the IMF expects real GDP growth in 2026 to rise because of fiscal policy and the effects of policy-rate cuts in 2025, while the OECD expects a slight decline because higher prices reduce purchasing power. Although the United States is a net oil exporter, the impact of weaker household purchasing power is expected to slightly outweigh the boost to related industries.

In the United States, product-specific tariffs on pharmaceuticals are scheduled to be introduced from the end of July, and procedures are also under way to introduce tariff measures under Section 301. These measures will affect the global economy primarily through trade.

In 2025, China added some rare-earth items to its export-control list in April. In October, following the expansion of United States export controls on China, additional Chinese measures and a situation believed to involve the temporary suspension of exports by a major semiconductor manufacturer with Chinese capital also emerged. In June 2026, the G7 set a goal of sharply reducing dependence on a single supplier country for rare earths and permanent magnets to less than 60 percent by 2030.

AI-related investment and exports boosted growth in the United States and Asia from 2025 through the first half of 2026, and hyperscalers’ capital expenditure is expected to expand for the time being. However, if expectations for productivity gains from AI adoption are not realized, or if profitability deteriorates because of soaring energy prices, these factors could become downside risks through slower investment and equity-market repricing.