The Middle East conflict delivered one of the biggest disruptions to global oil supplies in decades. The disruption of oil shipments through the Strait of Hormuz earlier this year briefly drove Brent crude prices to nearly $120 a barrel—roughly two-thirds higher than the price on the eve of the conflict. Yet the global economy has so far escaped the steep downturn that used to accompany similar oil shocks.
Consensus forecasts now put global growth at about 2.6 percent in 2026, close to what was expected in January and above the more pessimistic projections made in the spring. Yet the danger has not passed. The conflict has already added to inflationary pressures and pushed up borrowing costs, and a renewed rise in energy prices could further increase them.
The result is a striking paradox: The global economy has withstood a historic oil shock, but inflation and borrowing costs are rising. Five questions examine what has sustained this resilience—and why policymakers must remain vigilant.
1. How has the conflict affected energy and financial markets?
The effects have so far been severe but uneven.
Oil prices surged after the conflict began, then retreated to near pre-conflict levels at the end of June as markets adjusted and fears of further disruption eased. More recently, prices have again approached the highs reached at the start of the conflict (Figure 1.A). The ongoing closures of the Strait of Hormuz have sharply reduced oil shipments and renewed pressure on energy and other commodity prices (Figure 1.B).
Financial markets have followed a different course. Investors initially retreated from risky assets, but equities rebounded strongly after the April ceasefire. Optimism about AI helped lift equity markets in advanced economies (Figure 1.C), and the gains spread to many emerging markets and developing economies (EMDEs). The recovery was not universal, however. Financial market indicators in energy importers dependent on Middle Eastern supplies—and economies with pre-existing vulnerabilities—recovered more slowly. On the other hand, commodity exporters outside the conflict zone and countries with stronger policy frameworks and larger buffers saw their sovereign bond spreads rebound more rapidly (Figure 1.D). Nevertheless, following the renewed escalation of the conflict, long-term bond yields in advanced economies have risen substantially, pushing up borrowing costs in EMDEs.
read more: https://blogs.worldbank.org/en/developmenttalk/the-global-economy-has-been-resilient—so-far
