TEHRAN- A new report from the Organization for Economic Cooperation and Development (OECD) paints a grim picture of the world economy if the ongoing conflict in West Asia escalates and leads to a prolonged shutdown of the Strait of Hormuz.

According to the Paris-based institution, a scenario with no US-Iran agreement until 2027 would severely depress global growth and tip several nations into recession.

Under this “prolonged disruption” forecast, worldwide GDP growth would tumble to just 2.1% this year, down sharply from 3.4% in 2025. Emerging economies would suffer the heaviest blows. 

The blockage of the vital waterway—already squeezed for over three months—would force energy rationing for businesses, while prices of fertilizers, Sulphur, and helium would spike due to supply cuts.

Policymakers would face a brutal dilemma: raising interest rates too fast to curb inflation from surging energy and food costs could itself trigger recessions. 

The analysis also warns that the US artificial intelligence boom might be derailed. Higher energy bills and potential shortages would raise datacenter operating costs and constrain hardware supplies critical for AI systems, reducing incentives for AI investment.

In a foreword, chief economist Stefano Scarpetta calls the Iran conflict “the dominant force shaping the global economic outlook.” Developing economies with limited energy reserves, weak safety nets, and fragile currencies would be especially vulnerable.

An alternative, less catastrophic scenario assumes progress toward a durable peace, allowing oil prices to fall. Even then, global growth would reach only 2.8% this year—better than 2.1%, but still a downgrade. In either case, corporate borrowing costs are likely to rise, with $90 trillion in G20 debt exposed to higher interest rates.

The OECD concludes that the severity of this oil shock underscores the urgent need to reduce fossil fuel dependence and diversify energy sources globally.