The global economic outlook now turns on the length of the conflict in the Middle East, the OECD said, warning that a drawn-out war could trigger widespread slowdowns and notably higher inflation. The international body set out two scenarios: one in which Gulf oil and gas output returns toward pre-crisis levels and another in which energy disruption continues well into next year.
Under the OECD's baseline - the shorter-conflict path - Gulf energy production would begin a gradual return to pre-crisis output from the third quarter. In that scenario shortages would be largely limited to parts of Asia and would be mitigated by strategic reserves and shipments from alternative producers. Global growth would ease from 3.4% in 2025 to 2.8% in 2026 before picking up to 3.1% in 2027, a trajectory broadly consistent with the OECD's March projections.
By contrast, if the conflict sustains major energy disruptions into the following year, the organisation said global growth could weaken sharply - to 2.1% in 2026 and 1.8% in 2027. Those rates, the OECD noted, are rarely observed outside severe crises such as the global financial shock of 2008-2009 or the COVID pandemic. In that downside scenario some national economies could slide into outright recession, with Asian economies that rely on Middle East energy supplies likely to face the heaviest strain.
Higher energy prices in the prolonged-disruption case would raise inflation materially - adding 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027. The OECD flagged that such increases would probably lead central banks to lift interest rates by 0.5 to 0.75 percentage points in the near term.
Inflation and policy under the baseline
In the baseline outlook the OECD expects inflation across G20 economies to peak at 4% this year and then slow to 3.1% next year. Under that scenario monetary policy would remain largely unchanged this year, with rate cuts anticipated in the following year.
Global trade growth is expected to moderate after a strong 2025, yet the OECD highlighted that vigorous demand for AI-related goods and related investment - particularly in Asia - should provide some offsetting support for activity.
How the outlook differs across major economies
The OECD outlined uneven country-level prospects under its baseline scenario. In the United States, stronger energy exports are expected to bolster growth somewhat, counterbalancing some of the hit to household purchasing power from higher prices. U.S. growth is projected to slow modestly from 2.1% in 2025 to 2.0% in 2026 and to 1.8% in 2027.
For the euro zone, GDP growth is forecast to ease from 1.4% to 0.8% this year before rising to 1.2% next year. The OECD cited resilient labour markets and higher defence spending as factors that would help offset fiscal tightening by governments.
Britain's economy is seen slowing to 0.9% growth this year, with a recovery to 1.1% in 2027 as global trade stabilises and financial conditions ease.
In Asia, China is projected to slow from 5.0% growth in 2025 to 4.5% in 2026 and 4.3% in 2027. The OECD noted China has ample energy reserves that limit its exposure to oil price spikes, and that exports should benefit from lower U.S. tariffs and a competitive technology sector, even as a property slump continues to weigh.
Japan is singled out as particularly vulnerable to trade disruptions tied to the Gulf conflict, with growth expected to fall from 1.1% in 2025 to 0.6% in 2026 before a modest recovery to 0.8% in 2027 - a downgrade from March. While subsidies will help cushion the immediate energy shock, the OECD said Japan needs a "clear and credible" medium-term plan to rein in public finances as interest rates rise.
Sectoral implications and structural notes
The report underlines that energy markets are the immediate transmission channel for the scenarios presented. A return to normalised Gulf output would limit shortages and allow trade and investment - including in AI-related sectors - to continue supporting growth. Extended energy disruption would elevate costs across economies, pressuring household incomes, complicating central bank decisions and depressing trade-sensitive industries.
The OECD's analysis makes plain that outcomes hinge on the conflict's duration: the shorter path implies a modest cyclical slowdown, while the prolonged path would produce deeper, more widespread economic pain and higher policy rates.