Note: We continue to assess that the U.S. will declare ‘mission accomplished’ as and when it is able to reduce Iranian missile forces to a level where they no longer pose an unmanageable risk to Israel and the GCC states. How long that will take, however, is unclear at this point. Moreover, the longer the war continues, the more likely unexpected escalation pressure points will emerge that could extend the course of the war. November will see U.S. mid-term elections, which will create new domestic political realities. While the effects of the elections on the war (should it still be ongoing) are unclear, the mid-terms seem a reasonable stopping point for this analysis.

As of 30 March 2026, the war that began on 28 February has already produced what the International Energy Agency calls the largest supply disruption in the history of the global oil market. The IEA says Brent is up roughly 55% since hostilities began, Dutch TTF gas is about 70% higher, diesel and jet-fuel benchmarks in Asia have more than doubled, and crude and product flows through the Strait of Hormuz have fallen from around 20 million barrels a day before the war to a trickle. Public market coverage on 30 March also placed Brent around $116 a barrel, with Asian equities falling as investors priced in a wider regional war.

Our central judgment is that the world is not dealing with “just” an oil-price spike. It is dealing with a combined oil, LNG, refined-fuels, shipping, fertilizer, metals, inflation, and confidence shock.

- If the war lasts only another 4–6 weeks, the global economy probably suffers a sharp stagflationary slowdown but avoids a full generalized recession.

- If it lasts until November, the odds rise materially that the world shifts from a temporary shock into a more durable period of rationing, tighter financial conditions, and recession in several major importing regions.

These forward-looking ranges are our estimates, but they are grounded in the current scale of disruption, the limited bypass capacity around Hormuz, the already-fragile and threatened Red Sea shipping system, and the OECD’s warning that even its current downgraded outlook assumes the disruption begins to moderate from mid-2026.

The most important fact for the world economy is geographic, not political: too much trade passes through too few maritime arteries. The Strait of Hormuz accounted in 2024 and early 2025 for about one-fifth of global oil and petroleum-product consumption, more than one-quarter of global seaborne oil trade, and about one-fifth of global LNG trade. The EIA also estimates that 84% of the crude and condensate and 83% of the LNG moving through Hormuz went to Asian markets, which means Asia takes the first-round shock hardest.

The second critical artery is the Red Sea-Suez-Bab al-Mandab system. EIA says that in the first half of 2025, about 4.9 million barrels a day of crude and petroleum products moved through the Suez Canal and the SUMED pipeline, while about 4.2 million barrels a day moved through the Bab el-Mandeb Strait. Those flows were already roughly half 2023 levels because shipping had been pushed away by earlier Houthi attacks. Bab al-Mandab remains central to trade moving toward Suez, with about 12% of world trade typically passing through that corridor and roughly a quarter of global container trade touching it on the way to and from the canal. In other words, the world entered this war with one chokepoint already degraded.

That matters because the current war has turned what used to be “alternative routes” into the main routes. Saudi Arabia and the UAE do have some capacity to bypass Hormuz, but IEA says only Saudi and UAE crude lines can reroute flows around Hormuz and together may have about 3.5 to 5.5 million barrels a day of available extra capacity in 2026. That is useful, but nowhere near enough to replace normal Hormuz traffic.

The first shock transmission channel is the obvious one: energy supply and price. The IEA says global oil supply is projected to plunge by 8 million barrels a day over March, Gulf oil production has already been cut by more than 11 million barrels a day, and LNG supply has been reduced by around 20%. It also says Qatar and the UAE have lost more than 300 million cubic meters a day of LNG supply via Hormuz disruption, equal to more than 2 billion cubic meters a week. That is why this shock is more dangerous than a normal geopolitical oil rally: it is not only crude, but gas as well.

The second shock transmission channel is refined products, which hit households and industry faster than crude itself. The Gulf exported 3.3 million barrels a day of refined oil products and 1.5 million barrels a day of LPG in 2025, and the IEA says more than 3 million barrels a day of refining capacity in the region has already shut because of attacks and the lack of viable export outlets. It also warns there is little flexibility elsewhere to raise diesel and jet-fuel output enough to fully compensate. That is the mechanism through which trucking, aviation, farming, construction, mining, and emergency power generation start to feel pain even before the full macroeconomic slowdown shows up in GDP data.

The third shock transmission channel is shipping and logistics. UNCTAD’s 2025 review says Red Sea rerouting around the Cape of Good Hope extended voyage times, reduced effective capacity, and raised operating costs, with freight rates in 2024 approaching COVID-era peaks and volatility continuing into 2025. Renewed danger in Bab al-Mandab again threatens the route that ties the Red Sea to the Suez Canal, meaning more ships would be forced around southern Africa just as energy shippers are already scrambling for safer passages. This is how an energy shock turns into an everything shock: more fuel burned, longer transit times, lower vessel availability, less schedule reliability, and higher costs for manufacturers and retailers far from the Middle East.

The fourth shock transmission channel is inflation and monetary policy. The OECD’s March 2026 interim outlook says global GDP growth is now expected to slow to 2.9% in 2026, explicitly because the Middle East energy shock is raising costs and lowering demand. It also says G20 inflation is projected to be 1.2 percentage points higher than previously expected in 2026, reaching 4.0%, and warns central banks may need to adjust policy if price pressures broaden or growth weakens substantially. So governments are now trapped between two bad options: let households absorb more of the shock through higher prices, or cushion them and accept wider deficits and slower progress on debt reduction.

The fifth shock transmission channel is supply chains for key non-energy inputs. The IEA says more than 30% of global trade in urea moves through Hormuz, along with about 20% of ammonia and phosphate trade. Around half of global seaborne sulfur trade also moves through the strait, and the Gulf produces roughly 8% of global aluminum supply. This means the war affects agriculture, food prices, chemicals, smelting, packaging, construction, and manufacturing at the same time. The commodity map here is broader than oil and gas, which is why the global economic risk rises sharply as the conflict persists.

The sixth channel for shock transmission is confidence and financial repricing. The OECD says financial conditions have tightened and volatility has increased, particularly in parts of Asia. Oil is hovering around $110-115, Asian equities are down sharply, and market attention was shifting from pure inflation fears toward growth and labor-market damage from a longer energy shock. That matters because once firms lose visibility on shipping, fuel, and input costs simultaneously, they start delaying investment, preserving cash, and shortening procurement horizons.

Asia is the main zone of immediate exposure. EIA estimates that 84% of Hormuz crude and 83% of Hormuz LNG normally flow to Asia, and the IEA says almost 90% of LNG exported via Hormuz in 2025 was destined for Asia, accounting for more than a quarter of the region’s total LNG imports. That makes China, India, Japan, South Korea, Pakistan, Bangladesh, Thailand, Singapore, and the Philippines the places where energy affordability, industrial margins, and current-account pressure collide first. There is clear immediate market anxiety in Asia, but the deeper issue is structural: Asia is where the physical dependency sits.

For China, the risk is not simply higher import costs. It is that higher oil, gas, petrochemical, and freight costs arrive just as China is still relying on industrial momentum and external demand to support growth. The OECD still expects China to grow 4.4% in 2026 under its moderated-disruption baseline, but that forecast assumes conditions begin easing from mid-year. If the war lasts to November, China would still likely avoid outright recession because of state capacity and policy tools, but it would probably grow materially below its current path and face renewed industrial margin compression.

For Japan and South Korea, the problem is more acute because they are major energy importers with less tolerance for prolonged price spikes. Neither can easily swap out imported Gulf energy on short notice. Japan also faces direct shipping exposure through Suez-linked trade, while South Korea’s refining, petrochemical, and manufacturing base is highly sensitive to both crude and product costs. Even if these economies avoid deep recession, they are among the first likely to move into the classic war-shock pattern of weaker real income, tighter margins, and slower corporate spending. That is an inference from their import profile and from the EIA’s destination data, not an official forecast.

Europe is somewhat less directly dependent on Gulf crude than Asia, but it is deeply exposed to the second-round effects: LNG competition, diesel and jet-fuel tightness, chemical feedstocks, and Red Sea-Suez shipping costs. The IEA says Dutch TTF gas is about 70% higher since the war began, while the OECD now expects euro area growth to slow to 0.8% in 2026. Europe’s weakness is that it is once again paying a geopolitical premium for energy at a time when industrial competitiveness is already fragile.

The United States is more insulated physically, but not exempt. The EIA says U.S. imports from Persian Gulf countries through Hormuz were only about 0.5 million barrels a day in 2024, equal to roughly 2% of U.S. petroleum-liquids consumption, the lowest level in nearly forty years. But crude is globally priced, so American consumers still face higher fuel costs, airlines still face higher jet-fuel prices, and financial markets still absorb the same geopolitical shock. The U.S. is less vulnerable than Europe or Asia to physical shortage, but not to global price formation.

The Gulf states themselves are in the most paradoxical position. In theory, a producer benefits from higher prices. In practice, a producer under missile and drone threat benefits only if it can still move volume and keep critical systems operating. The IEA says traffic through Hormuz is essentially halted, storage is filling up, and output cuts are already severe. So the GCC is experiencing some of the worst features of wartime economics at once: lost exports, infrastructure vulnerability, higher insurance and security costs, and the risk that basic systems such as power and desalinated water become part of the target set.

The biggest losers beyond the immediate region are fuel- and food-importing emerging economies. They are hit through three channels at once: higher import bills, weaker currencies, and more expensive fertilizer and shipping. The OECD explicitly warns that persistent Middle East export disruption could aggravate shortages of key commodities, add to inflation, reduce growth, and trigger wider financial repricing. In lower-income importers, that often translates into fiscal stress, emergency subsidies, import compression, and eventually social pressure.

For this scenario, our base assumption is that the war continues through late April or mid-May, Hormuz remains only partially functional, the current IEA stock release continues, there is no full Bab al-Mandab closure, and damage to GCC export and utility infrastructure remains serious but not catastrophic. Under those assumptions, the most likely outcome is a hard stagflationary quarter, not yet a full world recession. That is broadly consistent with the OECD’s current forecast profile, which already assumes disruption eases gradually from mid-2026 onward.

Our estimate in that case is that global growth in 2026 lands around 2.7% to 3.0%, versus the IMF’s 3.3% pre-war baseline and close to the OECD’s current 2.9% projection. Global inflation would likely remain roughly around the OECD’s current 4.0% G20 call, perhaps somewhat above it if product shortages persist longer than crude shortages. I am not presenting those as official numbers; they are scenario judgments built on the IMF pre-war baseline, the OECD’s current moderated-disruption forecast, and the IEA’s measured size of the current supply loss.

In practical terms, a 4–6 week extension would mean the world spends the second quarter paying a heavy real-income tax. Households spend more on fuel, transport, utilities, and food. Airlines raise surcharges and trim routes. Trucking and shipping companies pass costs forward. Manufacturers protect margins by delaying hiring and capital spending. But if the conflict visibly moves toward de-escalation after that window, firms and governments can still treat 2026 as a bad year rather than a broken one. The existence of more than 8.2 billion barrels in global crude and product inventories, including 1.25 billion barrels of government emergency stocks, is a major reason containment remains possible in this shorter scenario.

Even in that shorter scenario, though, some sectors would still face acute stress. Aviation is one. The IEA says Asian jet-fuel benchmarks have more than doubled, and Gulf refining outages limit the world’s ability to replace missing product. Chemicals and fertilizers are another. If more than 30% of global urea trade and around 20% of ammonia and phosphate trade remain under prolonged chokepoint stress for another month or more, agricultural input prices will rise well beyond the war zone. A short war still creates a long tail in contracts, freight, and inventories.

Europe under this shorter scenario probably avoids a generalized recession, but I would still expect near-stagnation, especially in energy-intensive industry. Asia remains the main loser in volume terms. The U.S. slows but likely stays relatively stronger because of lower direct Gulf dependence and the relative insulation of its gas market. Fuel-importing emerging markets would still need emergency support measures and some would likely tap multilateral financing or resort to ad hoc import controls. Those are analytical judgments, but they follow the exposure pattern in the EIA destination data and the OECD regional growth assumptions.

So the bottom line on the 4–6 week extension is this: the world economy would likely remain bruised, inflationary, and politically uncomfortable, but still broadly manageable. The key difference between this scenario and the worse one is not whether prices are high; it is whether businesses and governments can still believe that the shock is temporary. The OECD’s present forecast still rests on that belief.