Report: Disruption of Mideast energy supplies into next year would slam global economy

Pro­longed dis­rup­tion of en­er­gy sup­plies from the Mid­dle East due to the Iran war would deal a se­vere blow to the glob­al econ­o­my, send­ing some coun­tries in­to re­ces­sion and spread­ing in­fla­tion and high­er un­em­ploy­ment, the Or­ga­ni­za­tion for Eco­nom­ic Co­op­er­a­tion and De­vel­op­ment said in a re­port Wednes­day.

Hard­est hit would be Asian economies that de­pend on crude oil, fu­el and nat­ur­al gas from the Per­sian Gulf, sup­plies that have been large­ly choked off by the clo­sure of the Strait of Hor­muz due to the risk of Iran­ian at­tack. And poor­er coun­tries where peo­ple spend more of their in­comes on fu­el and food would al­so be se­vere­ly af­fect­ed, the OECD said.

But the con­se­quences of sharply high­er en­er­gy prices and in­fla­tion would be felt around the world. Glob­al growth would slump to lev­els not seen ex­cept for ma­jor set­backs like the COVID-19 pan­dem­ic and the glob­al fi­nan­cial cri­sis and re­ces­sion of the late 2000s. Un­der the OECD’s pro­longed dis­rup­tion sce­nario, glob­al growth slows from 3.4% last year to 2.1% this year and 1.8% in 2027, po­ten­tial­ly push­ing some economies in­to or close to re­ces­sion.

Un­der a dif­fer­ent OECD sce­nario for a time-lim­it­ed dis­rup­tion, in which en­er­gy pro­duc­tion and ship­ments from the Gulf start to re­turn to pre-war lev­els in the mid­dle of this year, growth would slow to 2.8% this year and re­bound to 3.1% next year.

“The glob­al econ­o­my en­tered 2026 with ro­bust mo­men­tum, but the out­look has weak­ened sig­nif­i­cant­ly since the start of the con­flict in the Mid­dle East, with ef­fects like­ly to be felt for some time,” OECD Sec­re­tary-Gen­er­al Math­ias Cor­mann said. “The longer the dis­rup­tions last, the larg­er the eco­nom­ic and so­cial costs be­come.”

Cor­mann warned that gov­ern­ment spend­ing aimed at re­liev­ing en­er­gy costs need­ed to be aimed at those most in need and tem­po­rary, to avoid run­ning up ex­cess gov­ern­ment debt and pre­serv­ing in­cen­tives to save en­er­gy.

De­spite re­peat­ed out­breaks of vi­o­lence, a de­clared cease­fire in the war be­tween the US and Iran re­mains of­fi­cial­ly in place. The on­go­ing risk to ship­ping how­ev­er means that traf­fic through the Strait of Hor­muz has dwin­dled to a trick­le, down more than 90% com­pared to be­fore the war. That has dis­rupt­ed about a fifth of the world’s sup­plies of crude oil and fu­el prod­ucts as well as of nat­ur­al gas.

The OECD re­port fol­lows a UN study warn­ing that high­er en­er­gy prices will im­pact al­most bil­lion peo­ple in poor­er coun­tries and small is­land states that de­pend on im­port­ed fu­el, forc­ing trade­offs be­tween cov­er­ing en­er­gy bills and in­vest­ing in es­sen­tial pub­lic ser­vices. More than 30% of peo­ple in those coun­tries al­ready live be­low the ex­treme pover­ty line, de­fined as liv­ing on $3 or less a day.

The OECD is an in­ter­na­tion­al in­ter­gov­ern­men­tal or­gan­i­sa­tion and pol­i­cy fo­rum of 38 democ­ra­cies with mar­ket-based economies, head­quar­tered in Paris. —FRANK­FURT, Ger­many (AP)

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Sto­ry by DAVID MCHUGH | As­so­ci­at­ed Press