The ongoing conflict in the Middle East is undermining global economic growth, slowing it to its weakest pace since the Covid-19 pandemic, according to a World Bank report released Thursday. The report highlights how disruptions stemming from the war are driving inflation higher and raising concerns about a broader economic slowdown.

The World Bank attributes much of the economic strain to the effects of a U.S.-Israeli strike on Iran in late February, which has significantly disrupted cargo traffic through the Strait of Hormuz. This critical shipping route is vital for global oil, gas, and fertilizer exports. The ensuing supply chain interruptions have triggered volatile commodity prices and reignited inflationary pressures worldwide.

In light of these developments, the World Bank downgraded its global growth forecast for 2026, projecting GDP expansion to slow to 2.5 percent from 2.9 percent in 2025. The institution warned that a further escalation of the conflict, prolonging trade disruptions, could shrink output growth to as low as 1.3 percent.

Tensions escalated Thursday when former President Donald Trump threatened additional attacks targeting Iran’s energy infrastructure. He stated on social media plans to seize Iran’s Kharg Island and other oil facilities, aiming to dominate their oil and gas markets akin to actions in Venezuela. However, Trump later announced he had canceled these strikes, citing progress in peace negotiations.

The war’s impact on inflation is notable, with the World Bank forecasting an increase in global inflation to 4 percent in 2026, up from 3.3 percent last year. A 22 percent surge in commodity prices—contrary to earlier expectations of decline—has contributed to this rise. Energy price hikes have been particularly acute in the eurozone, where inflation reached 3.2 percent in May. This has prompted the European Central Bank to raise interest rates, marking the first global rate hike linked to the conflict.

Regions heavily dependent on imports are facing significant challenges. The Middle East is grappling with disrupted oil exports, Europe struggles with natural gas supply vulnerabilities, and sub-Saharan Africa is contending with elevated food costs and fertilizer shortages, all of which are hindering economic growth.

The United States has shown relative resilience due to factors such as tax cuts, investments in artificial intelligence, and robust domestic oil production. Nonetheless, inflationary pressures persist domestically, with the annual Consumer Price Index rising to 4.2 percent in May, compared to 2.4 percent before the conflict began.

The World Bank underscored the delicate balance policymakers must maintain between curbing inflation and fostering economic expansion. It cautioned that diminished investment could slow job creation. Ayhan Kose, deputy chief economist at the World Bank Group, said the crisis also presents opportunities: “This moment should be used to strengthen policy frameworks, invest in infrastructure, accelerate business-enabling reforms and mobilize private capital to support job creation at scale.”