World Economic Prospects
Each month Oxford Economics’ team of 450 economists updates our baseline forecast for 200 countries using our Global Economic Model, the only fully integrated economic forecasting framework of its kind. Below is a summary of our analysis on the latest economic developments, and headline forecasts. To access the full report (and much more), request a free trial today.
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The world economy is likely to withstand prolonged oil market disruption
- The renewed hostilities between the US and Iran suggest that a long-term reduction in shipping through the Strait of Hormuz is now the most likely scenario. We’ve raised our oil price forecast and expect it to average US$85 per barrel over the remainder of this year before gradually falling back to about US$65 by the end of 2027. We continue to forecast world GDP will increase by 2.5% this year and 3.1% in 2027. However, our 2026 forecast remains 0.5ppts lower than in February, and we still expect only a partial reversal in 2027.
- We still believe that it isn’t in the interests of the US or Iran to keep the Strait of Hormuz permanently closed. But mutual deep distrust and an unwillingness by either party to make large concessions mean a lasting deal is unlikely to be reached and maintained anytime soon. As a result, until at least 2028, traffic levels are expected to fluctuate as tensions ebb and flow, while on average remaining well below pre-conflict norms.
- The upward impact on oil prices will be partially offset by increased supply of oil from outside the Middle East, oil inventory rundown, some demand destruction, and new pipelines designed to circumvent the Strait of Hormuz. Overall, we assume that the Brent oil price will remain volatile and will normalise more gradually than we projected a month ago (Chart 1).
- The demand destruction associated with higher oil prices won’t necessarily result in significantly weaker growth. For instance, reductions in travel speeds may reduce oil use without posing much of a hit to overall economic activity, and cuts in non-essential travel may result in increases in local spending. As a result, the hit to world GDP from the revision to our oil price forecast is relatively small.
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