The World Bank has issued a stark warning about the economic fallout from escalating conflict in the Middle East, with its chief economist, Indermit Gill, cautioning that global growth could plunge to just 1.3% in 2026 — down sharply from 2.9% in 2025.
A Crisis on the Brink
This grim projection assumes hostilities between the U.S. and Iran persist for at least six months beyond February 28 — the date the current phase of conflict began. According to Reuters, the clock is ticking: the six-month window is set to expire in just weeks, heightening global anxiety.
A growth rate of 1.3% would bring the world perilously close to levels historically associated with global recession — excluding only the most severe crises, such as the 2008 global financial meltdown and the pandemic-induced downturn of 2020–2021.
Inflation Back in Focus
The Bank’s biggest concern lies in the return of strong inflationary pressures. Under this adverse scenario, global inflation is projected to rise to 4.5% in 2026 — up from 4.2% in 2025. Surging energy prices are expected to ripple across the entire production chain, pushing up costs for transport, industrial output, and agriculture.
That, in turn, could fuel fresh spikes in food and essential goods prices — triggering a new wave of cost-of-living pressure for households worldwide.
Energy and Shipping Under Strain
Military operations have already disrupted critical energy infrastructure, while also increasing risks to maritime navigation — particularly in two vital chokepoints: the Strait of Hormuz and the Red Sea via the Bab el-Mandeb strait. These narrow passages serve as key arteries for oil, liquefied natural gas (LNG), and general cargo moving between Asia, Europe, and beyond.
Prolonged disruptions in either corridor could drive energy costs even higher and cause major delays across global supply chains.
Interest Rate Risks Mount
Rising inflation could derail central banks’ plans to ease monetary policy. As Gill warns, if price pressures persist, major central banks may be forced to keep interest rates elevated longer — or even raise them further.
Such a move would increase borrowing costs for businesses and households, dampen investment and consumption, and significantly raise debt-servicing burdens for governments. Developing countries appear especially vulnerable: many still grapple with high public debt levels inherited from the pandemic era.