Middle East conflict, Supreme Court ruling reshape trade flows

Simultaneous shocks are reshaping global trade. The US-Israel war with Iran, the US Supreme Court’s dismantling of IEEPA tariffs, and the EU-India free-trade agreement are all pulling global trade in competing directions. The lower US effective tariff rate and new free trade agreements are positives, while the conflict in Iran is a clear negative.

• How much damage the Middle East conflict inflicts on trade depends on the length of the war and where oil prices stabilise. Our base case assumes the Strait of Hormuz remains effectively closed until end-April, then traffic rises to around 50% of pre-crisis levels in May and June, before gradually returning to normal over the following six months.

• If that pans out, global goods trade volumes would rise 2.3% this year and 2.5% next, both only marginally weaker than our pre-conflict forecasts. However, there’s significant uncertainty around the outlook – extended closure of the Strait could slow global trade volumes to a crawl.

• The US Supreme Court’s February ruling that IEEPA tariffs were unconstitutional has flattened the US tariff landscape, with a blanket 10% tariff imposed on all countries as an interim measure.

• Those previously on the hook for higher tariffs are the largest beneficiaries. We now forecast China’s exports to the US to grow around 1% this year and 4.4% in 2027, up from a projected 5.4% fall in our February forecast. Countries that negotiated favourable bilateral deals lose their edge under the flat rate.

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