In spring 2026, the central question for the world economy is no longer whether the Middle East war will inflict damage, but what kind of damage it will produce over the coming six months. The International Monetary Fund has already reset the baseline. In its April 2026 World Economic Outlook, it projects global growth of 3.1% in 2026 and 3.2% in 2027 under a limited-conflict assumption, while warning that rising commodity prices, firmer inflation expectations and tighter financial conditions are testing the economy’s recent resilience. (IMF)
That shift matters because the baseline is now clearly weaker than the one markets were using before the Gulf shock intensified. Reuters reported that, in the IMF’s severe scenario, global inflation in 2026 would rise above 6%, versus 4.4% in the Fund’s reference scenario. This means the debate is no longer about a smooth return to normality, but about how persistent the inflation shock becomes and how deeply it feeds into growth, trade and financial conditions. (IMF)
The most important change in spring 2026 is that the shock is broader and more entrenched than many investors first hoped. Reuters reports that the Strait of Hormuz remains closed, that global crude supply has fallen by around 13 million barrels per day since the war began, and that the International Energy Agency now expects global oil demand to contract by 80,000 barrels per day in 2026, reversing its earlier expectation of growth. Reuters also notes that the demand shock is no longer confined to Asia and is now spilling into Europe. (Reuters)
This has changed the monetary backdrop as well. A Reuters poll found that the Federal Reserve is now expected to wait at least six months before making any rate cut because war-driven energy shocks have reignited inflation risks. In the United Kingdom, a separate Reuters poll found that the Bank of England is expected to hold rates through 2026 as economists cut growth forecasts and lift inflation expectations. In the euro area, Reuters reported that the ECB is debating how to prevent the energy shock from feeding into the wider economy, while the IMF’s European assumptions imply that tighter policy later in 2026 cannot be ruled out if inflation proves more persistent. (Reuters)
Against that backdrop, the next six months will be shaped by four variables: whether oil and gas prices stabilise or stay structurally high; whether Gulf shipping and insurance begin to normalise or remain impaired; how far central banks are forced to delay easing or even tighten again; and whether businesses and households treat this as a temporary crisis or as the beginning of a more durable regime of expensive energy and weaker growth. That is why the global economy in spring 2026 looks neither resilient enough for complacency nor fragile enough for instant collapse. It is caught in between. (IMF)
Scenario 1: Controlled Stabilisation
This remains possible, but it no longer looks like the central case. Under this scenario, the conflict does not widen materially, practical shipping conditions improve before the summer, and oil stops feeding into a lasting inflation spiral. The IMF’s current reference case is still broadly consistent with that logic: growth slows, inflation rises in 2026, but the world avoids a full-scale recession. In such a setting, the next six months would feel difficult rather than catastrophic. Energy would stay expensive compared with pre-war expectations, but the shock would begin to soften rather than deepen, and central banks would remain cautious without being forced into a renewed tightening cycle. (IMF)
Scenario 2: A Stagflationary Pause
This is still the most realistic scenario in spring 2026, and the evidence supporting it has strengthened. The defining feature of this outcome is that the world avoids immediate collapse, but the war leaves behind a durable premium on energy, transport, insurance and inflation expectations. Growth slows, yet inflation does not fall cleanly enough for policymakers to relax. Reuters polling now suggests that the Fed is likely to postpone rate relief, the Bank of England may remain on hold throughout the year, and the policy debate in Europe is shifting from confidence in disinflation to concern about renewed price persistence. (Reuters)
For businesses, this is the most uncomfortable environment because it is not dramatic enough to trigger emergency rescue measures, yet it is severe enough to keep pressure on margins, borrowing costs and consumer demand. Companies face dearer finance, weaker investment appetite, cautious customers and more volatile input costs. Energy-intensive sectors, logistics-heavy businesses, import-dependent economies and firms with thin margins remain the most exposed, while businesses with stronger pricing power and stronger balance sheets are far better placed to absorb the strain. This is an inference, but it follows directly from the latest oil, inflation and rates signals. (Reuters)
Scenario 3: Fragmented Recession
The downside scenario has become more credible over the course of spring 2026. The longer Hormuz remains effectively shut and the longer physical energy disruption persists, the greater the risk that the world moves from an inflation shock into a broader contraction in activity. Reuters reported that if the closure persists into the next phase of the crisis, global oil demand could contract far more sharply, and in an extreme case demand destruction would need to do much of the rebalancing work if inventories and strategic reserves proved insufficient. That would not necessarily produce a single dramatic crash of the kind seen in 2008. A more plausible pattern would be a chain of local recessions that gradually spread: first through energy-importing economies, then through low-margin industrial sectors, and only later into labour markets, consumption and investment. (Reuters)
Which Scenario Looks Most Likely?
In spring 2026, the most likely scenario remains a stagflationary pause, but a harsher version of that scenario than markets were assuming earlier in the crisis. Controlled stabilisation is still possible, but it now requires clearer improvement in shipping, energy and inflation expectations than the available data currently show. Fragmented recession is not yet the base case, but it is no longer a remote tail risk either. (IMF)
The practical conclusion for entrepreneurs, investors and business leaders is therefore sharper than before. The most dangerous mistake is not panic, but complacency. Over the next six months, the world economy is likely to operate in an environment of expensive energy, delayed rate relief, nervous trade flows and structurally weaker confidence. In such a world, the advantage will belong not to the most optimistic companies, but to the most disciplined: those that protect liquidity, reprice risk quickly, monitor energy exposure closely and avoid building strategy around a single benign outcome. (IMF)
Andrii Azarov (Andrew Azarov) — Professor of Business, Economics, and the Applied Use of Artificial Intelligence in the Development of Business Process Automation Software Systems.
.png)
