The Organization for Economic Cooperation and Development warned Wednesday that the Middle East conflict has become the biggest threat to the global economy.
The conflict has driven up energy costs, fueling inflation, and slowing growth as disruptions to oil and trade flows continue.
In its latest Economic Outlook, the Paris-based organization said Iran's closure of the Strait of Hormuz and reduced production and exports from Persian Gulf economies have sent oil and commodity prices sharply higher since February, squeezing household incomes and weighing on economic activity worldwide.
The OECD projected that if disruptions persist, global growth could slow from 2.1% in 2026 to 1.8% in 2027, levels not seen since the COVID-19 pandemic and the Great Recession.
Global inflation would rise by 0.4 percentage points in 2026 and 1.3 percentage points in 2027, according to OECD Chief Economist Stefano Scarpetta.
Developing nations with limited energy resources and Asian economies are heavily dependent on Gulf oil and natural gas imports would face the greatest economic strain.
The OECD said, however, that growth could rebound to 3.1% in 2027 if energy production and shipments through the Strait of Hormuz return to pre-conflict levels.
The report highlighted the global economy's vulnerability to supply disruptions concentrated in a single strategic route and called for more diversified supply chains and energy sources.
It also urged governments to target relief measures toward households and businesses most affected by higher energy costs while maintaining incentives to reduce energy consumption.
The OECD said policymakers face difficult choices as inflation pressures rise and growth weakens.
While central banks may be able to look past temporary supply-driven price increases, broader inflationary pressures or a sharper slowdown could require policy intervention.
Despite the risks, the OECD noted that strong artificial intelligence-related investment, lower trade barriers, and supportive financial conditions continue to provide underlying momentum for the global economy.