IDEAS home Printed from https://ideas.repec.org/p/iie/wpaper/wp26-10.html

Global economic implications of the 2026 Middle East war

Author

Listed:
  • Warwick J. McKibbin

    (Peterson Institute for International Economics)

  • Marcus Noland

    (Peterson Institute for International Economics)

  • Geoffrey Shuetrim

    (McKibbin Software Group Pty Ltd.)

Abstract

This paper explores two scenarios for the potential economic effects of a Middle East war that causes a spike in energy prices. In the first, oil prices surge for one year to around $120 per barrel, while prices also rise sharply for liquefied natural gas, refined petroleum, and fertilizer; in the second, energy prices remain elevated for three years. We find in both scenarios, global growth slows relative to our baseline projection, but the effects are felt very unevenly. Countries dependent on Middle Eastern oil, petroleum, natural gas, and fertilizers experience the largest declines in GDP and increases in inflation. The effects on different sectors vary according to their energy sources, both directly through different energy dependence and indirectly through production networks. Also, trade relationships matter because as the global economy slows, countries such as China experience a decline in export demand, worsening GDP losses, even though China has large domestic supplies of oil, gas, and fertilizer.

Suggested Citation

  • Warwick J. McKibbin & Marcus Noland & Geoffrey Shuetrim, 2026. "Global economic implications of the 2026 Middle East war," Working Paper Series WP26-10, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp26-10
    as

    Download full text from publisher

    File URL: https://www.piie.com/publications/working-papers/2026/global-economic-implications-2026-middle-east-war
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp26-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peterson Institute webmaster (email available below). General contact details of provider: https://edirc.repec.org/data/iieeeus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.