Impact of Middle East Conflict on Global Economy and Inflation

The global economy is facing a significant slowdown this year, marking the weakest growth since the Covid-19 pandemic. The World Bank published a report highlighting the impact of escalating energy prices fueled by the ongoing Middle East conflict.

The conflict intensified following a U.S.-Israeli attack on Iran in late February, which disrupted cargo traffic through the vital Strait of Hormuz. This disruption has caused instability in oil, gas, and fertilizer prices, leading to a widespread increase in inflation. As a result, expectations for higher interest rates and reduced economic output have increased globally.

According to the World Bank’s revised growth outlook, the global economy’s growth rate is expected to decline from the 2.9 percent recorded in 2025 to 2.5 percent in 2026. If the conflict worsens and supply chain issues persist, the growth rate could drop further to 1.3 percent.

The situation appeared to escalate further as President Trump threatened additional military actions against Iran. He indicated plans for controlling Iran’s energy infrastructure, similar to the situation with Venezuela. On social media, he stated, “At some point in the not too distant future, we will be taking Kharg Island, and other oil infrastructure points, and assume total control of their Oil and Gas Markets, much like we have with Venezuela.”

Following years of persistent inflation, the current conflict is driving prices up once more. The World Bank projects global inflation will rise to 4 percent in 2026, up from 3.3 percent the previous year. A significant factor in this increase is a 22 percent rise in commodity prices, a stark contrast to the anticipated decline forecasted in January.