The conflict in the Middle East is expected to have a significant impact on the global economy, as mentioned by World Bank President Ajay Banga in an interview with Reuters. Even with a ceasefire declared by U.S. President Donald Trump, Banga highlighted that the repercussions would be profound if the ceasefire collapses and the situation escalates.
Banga stated that in a best-case scenario with a prompt end to the war, global growth could see a reduction of 0.3 to 0.4 percentage points. However, if the conflict persists, the decrease could be as high as 1 percentage point. Inflation may also rise by 200 to 300 basis points, reaching up to 0.9 percentage point in case of prolonged hostilities.
The World Bank’s latest projections suggest a growth rate of 3.65 percent for emerging markets and developing economies in 2026, down from the previous estimate of 4 percent. In an adverse scenario involving an extended conflict, this growth rate could drop to 2.6 percent. Inflation forecasts for these regions have been revised to 4.9 percent, up from the initial estimate of 3 percent, potentially reaching 6.7 percent in extreme circumstances.
The ongoing war has resulted in a significant increase in oil prices, up by 50 percent, disrupting the supply chains of essential commodities like oil, gas, fertilizers, and helium, along with impacting tourism and air travel. Despite the recent ceasefire announcement by Trump, tensions persist as Israel and Iran continue military actions. Iran has demanded the release of blocked assets and a ceasefire in Lebanon before engaging in talks with the U.S.
Banga emphasized the importance of achieving lasting peace and stability to avoid further disruptions to energy infrastructure. The World Bank is actively engaging with developing nations, including those without natural energy resources, to access crisis response funds. However, countries are cautioned against unsustainable energy subsidies that could strain their finances in the long term.
Many developing countries face challenges due to high debt levels and limited access to funding to address the surge in energy costs caused by the conflict. This situation reinforces the need for countries to diversify their energy sources and enhance self-sufficiency.
Nigeria’s investment in refineries has proven beneficial during the crisis, showcasing the importance of energy security and self-reliance. The World Bank is also collaborating with Mozambique to enhance energy production capacities in natural gas and hydropower.
In conclusion, Banga highlighted the necessity of scaling up alternative energy sources like nuclear, hydro, geothermal, wind, and solar to reduce reliance on traditional fuels and promote sustainable energy practices.