The OECD Predicts Global Recessions if the Iran War Continues Until 2027

According to projections from the Organisation for Economic Cooperation and Development, if the Middle East war continues into next year, global growth would suffer significantly, sending several economies into recession and triggering oil shortages.

The Paris-based club of developed nations projects a “prolonged disruption” scenario in its most recent Economic Outlook, predicting that the US and Iran won't reach an agreement until 2027.

Global GDP growth is expected to drop to 2.1% this year from 3.4% in 2025 due to this circumstance, which might force certain economies into or close to recession, especially emerging nations.

Energy Crisis & Geopolitics Threaten US AI Boom

Oil and gas shortages would lead to enforced energy rationing for businesses, increasing the prices of fertilisers and other essential inputs like sulphur and helium. Policymakers might struggle with rising inflation without triggering a recession by raising interest rates too quickly.

Remarkably, the analysis indicates that the US AI boom may be at risk due to potential energy price shocks or shortages. These factors could raise datacentre operating costs and limit the availability of essential hardware for AI systems, resulting in decreased capacity and incentive for AI investment, which may weaken growth in economies reliant on AI-related activities.

Moreover, Donald Trump has hinted at a potential deal with Tehran, which has stabilised oil markets, yet no agreement has been reached. Discussions are currently stalled due to Iran's refusal to engage while Israel attacks Hezbollah in Lebanon.

Meanwhile, the ongoing situation in the Strait of Hormuz has tightened international oil supplies for over three months, leading to rising prices and emergency measures in various countries.

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OECD: Iran Conflict & Corporate Debt Threaten Global Growth

In the OECD's foreword, chief economist Stefano Scarpetta highlighted the Iran conflict as a key factor influencing the global economic outlook.

He warned that in a scenario of prolonged disruption, the global effects could be particularly harsh on developing economies due to their limited energy resources, high energy and food costs in household budgets, constrained fiscal abilities, weak social safety nets, low private savings, and fragile currencies.

Likewise, the OECD outlines a less dire scenario where a durable peace agreement leads to declining oil prices. While some limited energy shortages may persist in certain Asian economies, global GDP growth is projected at 2.8%, a downgrade from last year but more robust than in the prolonged disruption case. Growth is anticipated to rise to 3.1% next year.

As per the OECD, the cost of borrowing for corporations is expected to rise due to declining confidence. Total corporate debt in G20 economies reached $90 trillion by Q3 2025, with a significant portion maturing in the next three years, potentially leading to higher interest rates.

The report also highlights concerns regarding the riskiness of the private credit sector, which has gained prominence as a lender since the 2008 financial crisis.

Private credit's links to other areas of the financial sector may lead to “adverse spillover risks” during a correction.

Eventually, the OECD emphasises that the recent oil shock, triggered by the Iran conflict, highlights the necessity of reducing the global economy's dependence on fossil fuels and diversifying energy sources. It identifies reducing reliance on foreign fossil fuels and enhancing energy efficiency as crucial long-term priorities, especially as disruptions to global energy markets continue.

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