Global businesses are increasingly bracing for prolonged economic disruption stemming from the ongoing conflict involving Iran, according to recent survey data and economic forecasts. The latest Oxford Economics Global Risk Survey reveals a growing consensus that instability in the Middle East, particularly in critical shipping routes, will continue to weigh on energy markets and broader economic conditions well into the latter half of the decade.
More than one-quarter of businesses surveyed now anticipate that maritime traffic through the Strait of Hormuz, a vital conduit for global oil shipments, will remain below pre-conflict levels until at least 2028. This represents more than double the share of firms holding this expectation just three months prior. The region has also seen recent interruptions to oil exports via the Red Seas, further compounding supply concerns. In addition, the proposed U.S. ban on diesel exports has injected further uncertainty into global energy markets.
Heightened concerns over energy supplies have translated into more elevated medium-term inflation expectations among businesses. The initial stages of the conflict triggered a sharper increase in anticipated inflation than other major recent shocks, including last year's U.S. tariff changes. Historical patterns suggest that once inflation spikes due to energy costs, it tends to recede only gradually. Data spanning nearly 100 cross-country episodes since the 1970s show that typically only about one-third of such inflation increases are reversed within a year.
Oxford Economics forecasts global consumer price inflation to peak slightly above 5% later this year, sustained by suppressed oil exports from the Middle East and oil prices remaining above $100 per barrel over the next six months. Inflation is expected to decline slowly in 2027, aligning with both historic trends and the current outlook of surveyed companies.
Monetary policy expectations have also shifted significantly in light of these developments. Prior to the conflict, few businesses foresaw imminent interest rate hikes among major central banks. Now, nearly half of respondents expect the Bank of England to raise policy rates in the coming months, following anticipated moves by the Federal Reserve and European Central Bank. This reflects broader market trends of rising long-term interest rates and the need for policymakers to counter persistent inflation amid uncertain energy supplies.
A key risk scenario identified by Oxford Economics and businesses surveyed involves a protracted period of elevated energy prices caused by ongoing minimal flows through the Strait of Hormuz. In this event, oil and gas prices would only moderate as alternative capacity to bypass the strait is developed, prolonging inflationary pressures and sustaining monetary tightening. While a global recession may be avoided under this scenario, growth would slow markedly. The forecast projects world GDP growth to decelerate to about 2% annually through 2027, significantly below the 2.8% projected prior to the conflict.
Such an economic shock would intensify concerns beyond growth and inflation, placing additional strain on public finances and heightening scrutiny of fiscal sustainability amid weakened economic expansion and rising borrowing costs. Businesses and investors worldwide are reportedly preparing for the far-reaching implications of sustained instability in the Middle East, which poses significant challenges to the global economic outlook in the coming years.