Global economic growth faces a severe downturn in 2026 following the outbreak of the war in Iran and the subsequent blockade of the Strait of Hormuz, according to projections released by the International Monetary Fund (IMF) and data compiled by the International Energy Agency (IEA). The conflict, which triggered the largest energy crisis in history, disrupted roughly 20% of the planet’s hydrocarbon exports and pushed international oil prices near $100 a barrel.
Global Growth Projections and G7 Impact
The International Monetary Fund revised its global growth forecast for 2026 down to 3.1%, falling 0.2 points from January projections of 3.3%, according to IMF chief economist Pierre-Olivier Gourinchas. Without the outbreak of the Middle East conflict, the institution had originally planned to upgrade global growth by 0.1 points based on positive early-year momentum, marking a total trajectory gap of 0.3 points, or approximately $350 billion in economic activity.
All G7 member nations—Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States—saw their growth outlooks downgraded following the launch of the war. Average growth across the G7 sits at 0.97% for 2026, with only the United States and Canada projected to expand by more than 1% this year. U.S. growth expectations dropped from 2.4% to 2.3% between January and July, while American energy firms recorded surging profits despite the broader slowdown.
Energy Disruptions and the Strait of Hormuz Blockade
The economic shock stems primarily from the restricted traffic in the Strait of Hormuz, an essential shipping lane for global energy supplies. Cumulative supply losses from Persian Gulf producers surpassed 1 billion barrels, with more than 14 million barrels of oil per day rendered unavailable, according to late-May estimates from the IEA. Brent crude prices surged from $62 at the start of the year to a peak of $115 in early April before stabilizing just below $100.
The energy crunch ignited inflationary pressures worldwide. In the United States, inflation climbed from 2.4% year-over-year in February to 4.2% in May, causing real average wages to decline for three months. Data from the Conference Board indicates that two out of three Americans have reduced their purchases and are depleting their personal savings to cover living costs, contributing to a drop in public approval for President Donald Trump’s administration.
In the eurozone, inflation accelerated to 3.2% in May compared to 1.9% in February, prompting the European Central Bank to raise interest rates. Economists note that the eurozone absorbed a heavier growth penalty than the United States or China.
Diverging Fortunes Among BRICS Economies
Emerging markets faced varied disruptions, though foundational BRICS economies proved more insulated than the G7. Among the five founding BRICS members—Brazil, China, India, Russia, and South Africa—only South Africa experienced a downward revision, with its forecast dropping by 0.3 points. Average growth for the BRICS bloc is projected at 3.12%, widening the growth gap between the G7 and BRICS blocks to 2.15 points.
Exogenous factors protected several emerging economies from steeper declines. Brazil’s output benefited from increased agricultural exports to China, while India’s expansion relied on strong domestic consumption and services. Conversely, Persian Gulf economies faced direct operational challenges; Qatar, Bahrain, and Kuwait are projected to enter recessions this year after energy facilities sustained damage from military strikes.
Despite the scale of the energy shock, Christophe Boucher, chief investment officer at ABN Amro Investment Solutions, noted that the global economy displayed underlying resilience. Governments deployed strategic petroleum reserves, the Trump administration eased certain sanctions on Russian oil exports, Saudi Arabia rerouted shipments via its Red Sea pipeline to Yanbu, and domestic demand cooled naturally in response to higher retail prices.