Economies to feel war heat across globe

The war in the Middle East will likely affect the global economy and the United States, whether it continues for a short or long term, because of disruptions in the oil market that could trigger inflation and spur a recession, warn experts, economists and the International Monetary Fund.

Widespread stagflation could be the result of the war because of the long-term closure of the Strait of Hormuz, said Mohammad N. Elahee, a professor of international business at Quinnipiac University in Hamden, Connecticut.

"The US is an integral part of a complex web of a global trading and financial system whose stability is essential for a healthy US economy," Elahee said. "The duration and geographic scope of the conflict will be the single most decisive variable in determining its economic consequences."

Despite an extended ceasefire between Washington and Tehran, the US naval blockade in the strait and Iran's recent attacks on ships have created an impasse.

Elahee explained that in the 1970s, the US experienced a period of stagflation, amid the 1973 Arab embargo and the 1979 Iranian Revolution's influence on supply, which resulted in fuel shortages, surging oil prices and long gasoline lines.

While the US is now a total net energy exporter, it is not unaffected by swings in global oil prices.

"I remember the 1970s," said Robert Kaufmann, an affiliate faculty member of the Boston University Global Development Policy Center. "That was a period of stagflation where you had very slow economic growth and high inflation and this could push us back in that direction."

The IMF's World Economic Outlook released on April 14 downgraded its overall growth forecast for the global economy because of disruptions to oil markets that could fuel inflation. This raises the possibility of a global recession and slow growth, according to the report.

Global growth could slow to 3.1 percent this year, down from the 3.4 percent recorded in 2025, and 0.2 percentage points lower than the IMF's January projection.

"The global outlook has abruptly darkened following the outbreak of war in the Middle East," IMF Chief Economist Pierre-Olivier Gourinchas wrote in the report. "The war interrupted what had been a steady growth trajectory."

Even if the war ends quickly, the economic damage has been done, the IMF said.

US output is expected to rise 2.3 percent this year, an increase from the 2.1 percent in 2025, but slower than the 2.4 percent the IMF projected in January, The New York Times reported.

In better shape

For China, the world's largest oil importer, its careful planning could prove vital for its economic success.

An analysis by a strategist at Goldman Sachs said China is in better shape than other major economies to withstand an oil shock thanks to its energy diversification over the past 10 years.

"China looks better placed than most in this oil shock," Kinger Lau, chief China equity strategist, wrote in a note on March 30, which was seen by Yahoo Finance.

However, developing and low-income countries could face more economic problems than developed ones, the IMF noted.

Elahee said countries with a large population that rely heavily on Middle Eastern oil should brace for adverse effects.

"Nations such as Bangladesh, Pakistan, Nepal and the Philippines depend heavily on remittances sent home by millions of migrant workers employed in the Gulf economies," he added.

War and economic contraction in the region reduce demand for migrant labor, trigger mass evacuations and disrupt financial transfer systems, he said.