World Bank Cuts Global Growth Forecast to 2.5% as US-Iran War Drives Energy Shock
The World Bank has slashed its 2026 global growth forecast to 2.5% — the weakest since COVID-19 — as the US-Iran conflict disrupts energy supply through the Strait of Hormuz, pushes oil near $94/barrel, and lifts global inflation to an estimated 4%. The outlook could worsen significantly if disruptions deepen.
What happened
The World Bank's June 2026 Global Economic Prospects report cut the global growth forecast for 2026 from 2.9% (January estimate) to 2.5%, citing the economic fallout from the US-Iran war. Iran's closure of the Strait of Hormuz — through which a large share of the world's oil and gas transits — has sharply disrupted energy supply chains. Brent crude is now expected to average $94 per barrel in 2026, 36% above last year's average. US gasoline prices have exceeded $4.50 per gallon. Global inflation is projected to reach 4%, up from 3.3% last year, with fertiliser and food prices also rising. Two-thirds of countries have had their growth forecasts downgraded. In a worst-case scenario — if energy disruptions worsen — global growth could fall to just 1.3% and inflation could hit 4.4%.
Why it matters
A global growth rate of 2.5% means slower job creation, tighter household budgets, and higher prices for energy, food, and everyday goods for billions of people worldwide. Developing nations are hit hardest, as they have less fiscal room to absorb the shocks and depend more heavily on imported fuel and fertiliser. Higher inflation erodes purchasing power and may push central banks to keep interest rates elevated, increasing borrowing costs for governments, businesses, and consumers alike. The fragile US-Iran ceasefire remains under pressure, meaning conditions could deteriorate further.
What could happen next
The World Bank projects global growth will partially recover to 2.8% in 2027, but warns it will remain 0.4 percentage points below the 2010s average. The institution has committed up to $60bn to support affected developing countries, with the capacity to scale that to $100bn if the conflict persists.
Context
The Strait of Hormuz is a narrow waterway between Iran and Oman through which roughly 20% of the world's oil supply passes. Its closure or disruption is one of the most consequential chokepoints in the global energy system. The conflict began when the US and Israel launched military operations against Iran, prompting Iran to close the strait to all shipping.