Few economic impacts from Iran conflict outside the GCC

The conflict in the Middle East will likely have significant implications for Gulf Cooperation Council (GCC) economies. But because the region accounts for less than 2% of world GDP, the economic spillovers to the rest of the world will be largely via higher gas and oil prices. We think higher energy prices from a moderate disruption in the Strait of Hormuz would only knock 0.1ppt off world GDP growth this year.

• A moderate disruption could push the average oil price to almost $80 per barrel in Q2 before gradually falling back to a little more than $60 towards year-end, while gas prices would rise sharply too.
• US and Eurozone CPI inflation would only average 0.3ppts–0.4ppts more in 2026, which will do little to crimp spending and is unlikely to prompt central banks to contemplate a significant change to their courses for policy rates.
• The duration of the conflict and the nature of any regime change in Iran is key to understanding the economic impact, but these remain highly uncertain, with risks of a more pronounced spike in energy prices or significant adverse financial market reactions across the globe.