The conflict, which began in late February, has disrupted up to 15-20 per cent of global oil and gas supplies due to the effective closure of the Strait of Hormuz. This has pushed Brent crude prices to around $115 per barrel and WTI to $100, with physical oil prices in the Gulf trading even higher, signalling severe supply fragmentation, S&P Global said in a press release.
The Middle East war has weakened the 2026 global outlook, with S&P citing slower growth, higher inflation and severe energy disruptions after up to 20 per cent of oil and gas supplies were hit.
Rising crude prices have tightened financial conditions, while central banks turn cautious.
Europe and Asia face higher risks, though India remains resilient.
The conflict is triggering a global recession.
S&P now expects moderately lower global growth and materially higher inflation in its baseline scenario, assuming the conflict eases by April. Earlier expectations of stronger growth driven by AI investments, favourable financial conditions, and low energy prices have largely been neutralised, with risks now firmly tilted to the downside.
Economic indicators have already begun to reflect stress. Purchasing managers’ indices across major economies have declined, particularly in services sectors, while financial conditions have tightened due to rising energy costs, higher borrowing rates, and weaker equity markets. The US dollar has strengthened as a safe-haven asset, further increasing imported inflation for many economies.
Central banks have adopted a more cautious stance, with the US Federal Reserve and Bank of England pausing rate cuts, while the European Central Bank signals potential rate hikes. Policymakers now face a complex trade-off between rising inflation and slowing economic growth.
Regionally, Europe is expected to face the most significant impact due to its reliance on energy imports, while Asia-Pacific economies remain highly exposed to supply disruptions. China’s growth is projected to slow, while India shows relative resilience supported by strong domestic fundamentals and policy measures.
S&P forecasts US GDP growth at 2.2 per cent in 2026, though inflation could approach 4 per cent due to higher energy costs. Emerging markets face mixed impacts, with energy importers particularly vulnerable to rising prices and currency pressures.
In a downside scenario, S&P warns that prolonged conflict could trigger a broader financial shock, leading to tighter credit conditions, reduced consumption and investment, and a potential global recession.
The crisis is also expected to accelerate structural shifts in the global economy, including increased focus on energy security, reduced reliance on globalisation, and potential growth in renewable and nuclear energy adoption, although at the cost of higher long-term economic inefficiencies.
Fibre2Fashion News Desk (SG)
