Hormuz Crisis Global Economy — The World Bank has sharply downgraded its outlook for the global economy, warning that the ongoing conflict between the United States and Iran — and the resulting closure of the Strait of Hormuz — is inflicting serious damage on energy markets, inflation, and growth prospects across the world.
In its Global Economic Prospects report published Thursday, the bank cut its 2026 global growth forecast to 2.5 percent, retreating from the 2.9 percent projection issued just months ago in January. Growth forecasts were revised downward for two-thirds of all countries tracked by the institution.
The Strait of Hormuz, one of the world’s most strategically critical chokepoints for oil and gas transit, was closed by Iran in response to hostilities launched by the US and Israel. The disruption has sent energy costs surging. Brent crude is now forecast to average $94 a barrel this year — a 36 percent jump above last year’s average — while fertiliser prices are also expected to rise significantly, compounding pressure on food-importing nations.
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Global inflation is projected to climb to 4 percent this year, up from 3.3 percent in the prior year. Higher borrowing costs and rising energy prices are feeding directly into that acceleration, the bank said, squeezing household budgets and government finances alike.
The picture could darken considerably further. If energy supply disruptions worsen, the World Bank estimates global growth could plummet to as low as 1.3 percent — a figure that would represent one of the most severe peacetime slowdowns in decades — while inflation could spike to 4.4 percent. Even the bank’s baseline scenario offers little comfort: a projected recovery to 2.8 percent growth in 2027 would still leave the world economy 0.4 percentage points below the average rate recorded throughout the 2010s.
Ajay Banga, president of the World Bank Group, has positioned the institution as a financial backstop for nations least equipped to absorb the shock. The bank has set aside up to $60 billion to assist developing countries experiencing economic fallout from the Middle East conflict, with the capacity to scale that commitment to $100 billion should the crisis persist.
Developing nations, the bank cautioned, stand on the front line of the economic impact. Excluding China and India, poorer countries have made little meaningful progress in narrowing the per capita income gap with wealthy nations over the past decade. A prolonged energy shock risks erasing what modest gains have been achieved, pushing millions deeper into economic vulnerability.
Hormuz Crisis Global Economy: The Energy Security Dimension
The ceasefire between the United States and Iran, while nominally in place, is described as fragile and at serious risk of reigniting. Any renewed escalation would almost certainly deepen the disruption to global oil and gas flows through the Strait of Hormuz, a passage through which a significant share of the world’s energy supply transits daily.
The World Bank’s report underscores how rapidly geopolitical shocks can translate into macroeconomic pain. Surging energy prices ripple outward into transport costs, manufacturing inputs, and food production, while higher inflation forces central banks to maintain elevated interest rates — raising borrowing costs for governments and businesses at precisely the moment fiscal support is most needed.
The combination of a fragile ceasefire, elevated crude prices, and weakened growth trajectories presents policymakers with a narrow and difficult path. For the world’s most vulnerable economies, the margin for error is vanishingly small.
