OECD warns global economy faces prolonged downturn as Iran conflict disrupts energy markets

More than 100 days into the ongoing conflict involving Iran, the global energy landscape remains fractured, with approximately 20 per cent of the world’s energy flows disrupted. This sustained interruption has been characterised as the biggest supply shock in history, fundamentally altering the trajectory of international trade and energy security.

Despite the severity of the disruption, oil prices have stabilised near $100 a barrel, successfully avoiding the nightmare scenario that analysts had long feared. Many experts had warned that a prolonged blockage of the Strait of Hormuz could drive prices above $200 a barrel, a threshold that would likely trigger a severe global economic crisis.

The containment of prices has been achieved through a combination of policy interventions and market adjustments. Governments have released strategic reserves to bolster supply, while exporters have identified and utilised alternative transport routes. Additionally, weaker global demand has played a significant role in absorbing the shock and preventing a more drastic spike in costs.

However, the mechanisms that have kept prices manageable are showing signs of strain. The buffers currently in place, including the depletion of strategic petroleum reserves and the capacity of alternative shipping lanes, are described as thinning. This suggests that the current stability may be precarious as the conflict persists and resources are consumed.

The Organisation for the Economic Co-operation and Development (OECD) has issued a stark assessment of the long-term implications, warning that the economic fallout will not resolve quickly. Even if the conflict were to end immediately, the OECD cautions that impacts such as persistent inflation and slower economic growth could linger well into 2027, underscoring the deep structural damage inflicted on the global economy.