What is the global economy most afraid of in 2026?

A question that travels from the strait to the dinner table

Why can disruptions to energy supplies simultaneously slow economic growth and push up prices? This article draws on the OECD Economic Outlook, Volume 2026 Issue 1, published in June 2026; the report divides the disruptions caused by the conflict in the Middle East into short-term and long-term scenarios to examine where the global economy may be headed.

The OECD says the world economy entered 2026 with more resilience than expected, supported by artificial intelligence-related investment, looser financial conditions, and easing trade tensions; the conflict in the Middle East and the resulting disruption to energy transportation subsequently became major forces shaping the global outlook.

The shock has already extended beyond oil prices themselves. Data cited by the OECD show that global oil supply fell by about 13.5% from February to April 2026, oil production in Gulf economies fell by 45% in April, and global natural gas supply is expected to be about 15% lower than previously projected. The report says fertilizers, helium, sulfur, and petrochemical feedstocks have also been affected, so costs will continue to pass through agriculture, manufacturing, transport, and household bills.

Logistics have amplified the pressure as well. The OECD records that global shipping costs rose by about 45% after the conflict began, while air freight costs rose by nearly 30%; port congestion, war-insurance costs, and fuel prices are all increasing transport costs. The report says the global economy is facing simultaneous constraints on energy, critical raw materials, and logistics.

Short-term disruption: expensive for a while, then gradually recovering

The OECD’s short-term disruption scenario first establishes several conditions: peace talks make progress, energy prices gradually decline from mid-2026 along the path reflected in futures markets, and energy production and trade in the Gulf region recover from the third quarter; strategic reserves, oil in transit, and non-Gulf suppliers can still cushion part of the shortfall. Only if these conditions hold does the report’s baseline path apply.

Along this path, the OECD expects global economic growth to fall from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027. Here, slower growth means that global production and income are still increasing, but at a slower pace; the report does not describe 2.8% as an overall global recession.

Prices, meanwhile, rise first. The OECD expects annual G20 consumer-price inflation to increase from 3.4% in 2025 to 4.0% in 2026, then fall back to 3.1% in 2027 as energy pressures ease and food-price pressures peak. The report’s short-term scenario therefore shows growth falling and then rising, while inflation rises and then falls.

The OECD also provides sensitivity estimates: if oil, gas, and fertilizer costs in the second half of 2026 fall an additional 10% below its baseline path, global growth in 2027 could be 0.1 percentage points higher and global inflation 0.3 percentage points lower. This also shows that the figures in the table will change with energy prices and the course of the conflict.

Long-term disruption: high costs become lasting damage

The OECD’s long-term disruption scenario assumes that restrictions on energy production and exports in the Gulf region continue into the second half of 2027, energy and fertilizer prices remain higher than in the short-term scenario, financial conditions tighten significantly, and household and business confidence weakens further. The report understands tighter financial conditions to mean more expensive financing and greater difficulty obtaining loans and investment capital.

Under these assumptions, the OECD’s model lowers global growth to 2.1% in 2026 and 1.8% in 2027, and suggests that some economies could enter or approach recession, with unemployment rising and business investment weakening. The short-term scenario recovers to 3.1% in 2027, while the long-term scenario continues to fall to 1.8%; the main divergence between the two paths comes from how long the supply disruption lasts and the resulting losses in investment and confidence.

Inflation will not simply disappear immediately because the economy is weakening. Compared with the short-term scenario, the OECD estimates that long-term disruption would add 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027; upward pressure from commodity prices would be only partly offset by weaker final demand.

The OECD expects most countries may need to raise policy interest rates by 50 to 75 basis points in 2026 to contain broader inflationary pressures, then gradually reverse those rate increases as growth weakens further. The report says this means energy becomes more expensive and the economy weaker, while the cost of borrowing may temporarily rise.

Why do some people struggle more with the same shock?

The OECD believes Asian economies will be hit harder in the long-term scenario because of their greater dependence on energy supplies from the Middle East; developing economies where energy and food account for a larger share of household spending and where foreign-exchange and fiscal buffers are weaker are especially vulnerable. This means the global average growth rate cannot directly represent the experience of every country or household.

The report also points out that governments’ responses will change the outcome of the shock. The OECD argues that support should be targeted at the households that need it most and businesses that remain viable, with clear exit dates; the report says broad tax cuts and price caps are costly and would also weaken incentives to conserve energy.

The OECD also lists factors that could cause outcomes to diverge from the two scenarios, including export restrictions, repricing in financial markets, shortages of energy and critical materials affecting artificial intelligence infrastructure, and changes in United States tariffs. The report also acknowledges that if businesses continue to demonstrate adaptability and artificial intelligence productivity gains emerge more quickly, growth in 2027 could exceed the scenario results.

Therefore, these two sets of figures should not be understood as predictions covering every possible outcome. The OECD explicitly says that the duration and scope of the conflict remain highly uncertain; the report does not predict when a peace agreement will be reached, nor can a global model alone answer how much a particular country, industry, or household will ultimately lose.

The answer depends on how long the disruption lasts

Under the OECD’s two scenarios, the greatest risk to the global economy in 2026 is the prolongation of disruptions to energy and critical inputs. If production and transport gradually recover in the second half of 2026, the report expects growth to rebound in 2027 and inflation to fall; if restrictions continue into the second half of 2027, the report expects growth to continue falling to 1.8%, while inflationary pressure remains higher than in the short-term scenario.

The outcome therefore depends on one unresolved condition: whether the disruption is a shortage that can be managed with inventories, alternative supplies, and policy support, or whether it will last long enough to damage investment, employment, and productive capacity. The report provides two conditional paths, but the course of the conflict, market reactions, and national policies will determine which scenario the actual outcome more closely resembles.

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Source institutions：OECD

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