The $700 Billion Warning

The Organization for Economic Cooperation and Development (OECD) has issued a stark warning about the global economy, forecasting a potential loss of at least $700 billion as growth slows significantly due to disruptions in energy markets and trade flows.

The root of the crisis is the armed conflict in the Middle East, which has led to a near-complete halt in commercial shipping through the critical Strait of Hormuz.

This strategic chokepoint is vital for global commodity trade , handling approximately 20 percent of the world's oil and liquefied natural gas (LNG) shipments, along with 30 percent of the fertilizer trade, 40 percent of urea, 50 percent of sulfur, and 30 percent of phosphate supplies.

Soaring Fuel Costs and Supply Chain Disruptions

The halt in shipping and soaring fuel costs have created immense pressure on global supply chains. Vessels are stranded, shipping costs have skyrocketed, and many countries' export-import balances have been severely disrupted.

This has fed into higher inflation worldwide, with Brent crude prices now about 30 percent higher than before the conflict, and European gas prices having surged by 50 percent due to constrained supplies.

Declining consumption due to supply constraints and rising input costs for businesses have forced major international institutions to sharply downgrade their growth projections.

A Prolonged Disruption?

The OECD outlines two primary scenarios: a short-lived disruption and a prolonged one. In the less severe scenario, global growth is forecast to drop from 3.4 percent in 2025 to 2.8 percent in 2026, before a modest recovery to 3.1 percent in 2027.

If the conflict and trade disruptions persist much lnoger, the outlook becomes far more dire, with growth potentially plummeting to 2.1 percent in 2026 and further to just 1.8 percent by 2027.

Other financial watchdogs have echoed these concerns, with Fitch Ratings cutting its 2026 global growth forecast by 0.2 percentage points to 2.4 percent, directly citing the oil crisis.

Global Trade Growth: A Sharp Decline

The OECD projects global trade growth will fall from 5 percent in 2025 to 3.1 percent in 2026 and 2.9 percent in 2027, with a sharp decline expected in the second and third quarters of 2026 due to reduced trade with Gulf economies and higher energy and transport costs.

The World Trade Organization (WTO) anticipates an even more precipitous fall, expecting trade to drop to 1.9 percent this year after a 4.6 percent surge in 2025, before recovering slightly to 2 .6 percent in 2027.

Vulnerable Countries: A Fragile Period Ahead

The burden is not evenly distributed; out of 75 vulnerable countries identified by UNCTAD, some 65 are net oil importers, representing a combined population of about 1 billion people.

For these nations, already grappling with economic challenges, the surge in oil prices could add over $20 billion to their annual import bills, exacerbating debt and inflation crises.

There is a partial counterbalance, however, in the form of unexpectedly strong investment in artificial intelligence and related technology, which is supporting some global trade and exports, particularly from Asian economies.