Iran conflict takes heavy toll on global economy, trade in past 100 days

The global economy and trade growth is expected to massively slow down this year amid disruptions in the Strait of Hormuz affecting oil, natural gas, and fertilizer supplies over the past near-100 days since the US-Israel war with Iran began on Feb. 28, Anadolu reports.

The armed conflict in the Middle East has led to major challenges for the global economy, not to mention the loss of human lives.

Iran largely halted commercial maritime shipping traffic in the Strait of Hormuz in retaliation for the US and Israel’s pre-emptive attacks on the country.

Around 20% of global oil and liquefied natural gas (LNG) gas trade, 30% of fertilizer trade, around 40% of urea supply, 50% of sulfur supply, and 30% of phosphate supply were affected by the disruption.

Brent crude is trading 30% above pre-war levels currently, while European gas prices are 50% higher due to supply constraints.

Fuel costs for ships surged 59% during this period, according to the World Maritime Council.

Disruptions in the global shipping network and surging fuel costs place more and more pressure on the supply chain.

The sudden rise in prices and the contraction of the global fleet, as well as rising shipping costs due to vessels being stranded in the strait, and the disruption of many countries’ export and import balances, led to higher inflation estimates.

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Declining consumption due to supply constraints and companies facing higher input costs led to sharp downward revisions in growth estimates for the global economy and trade.

The Organization for Economic Cooperation and Development (OECD) reported that the war and its duration will be decisive for assessing the global economic growth, according to its latest Economic Outlook report on Wednesday, forecasting two scenarios, namely “a time-limited disruption” and “a prolonged disruption” scenarios.

The OECD estimates that if the war is short-lived, the global growth could drop from 3.4% in 2025 to 2.8% in 2026, rising 3.1% in 2027.

Meanwhile, a 0.6 percentage point slowdown in growth translates to a potential loss of at least $700 billion for the global economy, given that it is currently valued at around $118 trillion.

If the war and disruptions in trade flows persist for longer, global economic growth could weaken as low as 2.1% this year and 1.8% in 2027, according to the OECD.