Drawn-out Iran conflict prompts broad-based forecast revisions

It has become increasingly clear that the US/Israel-Iran conflict will cause a more drawn-out period of disruption to energy production in the Middle East and shipping traffic through the Strait of Hormuz.

In line with our colleagues at Alpine Macro, we assume that the conflict is now more likely to last around two months, implying that the Strait of Hormuz could remain effectively closed until the end of April. We assume that traffic levels will rise to around 50% in May and June, before gradually recovering to normality over the following six months.

What you will learn in this report:

• The Middle East conflict is unleashing higher energy and food prices and supply chain snarl-ups, but it’s a smaller overall supply shock than the one that hit the global economy in 2022.
• We’ve raised our oil and natural gas price forecasts in anticipation of a more prolonged conflict in the Middle East and a slower return to normal levels of energy production in the region and traffic through the Strait of Hormuz.
• We forecast the Brent oil price will average $113 per barrel in Q2 and converge to the pre-crisis anticipated path by 2028.
• Higher energy and food prices, along with higher core inflation, thanks to some moderate second-round inflation effects, mean we’ve raised our world CPI inflation forecast for 2026 to 4.0%.
• Higher prices and uncertainty will squeeze household spending and investment. We now expect world GDP growth of 2.6% this year, down from our forecast of 3.0% in February.