How will the Middle East conflict impact global energy prices?

The Middle East conflict has triggered sharp increases in global energy prices, primarily through significant disruptions to the production and transport of hydrocarbon supplies from the Gulf region. Under the current baseline, which assumes that peak shipping disruptions end in July 2026, Brent crude oil is forecast to average $94 per barrel (bbl) for the year—an increase of 36% over 2025 and 50% above pre-conflict projections.

The following transmission channels and risks highlight the conflict's impact on energy markets:

• Disruptions to Strategic Chokepoints: The conflict led to a near-total cessation of shipping through the Strait of Hormuz, a critical waterway for global oil and gas trade. While the baseline assumes volumes will return to near pre-conflict levels by the end of 2026, a more prolonged closure represents a major downside risk.

The impact of these price shocks is highly uneven across the global economy. Net energy importers in regions such as East Asia and Pacific (EAP) and South Asia (SAR) are most vulnerable, facing widening trade deficits and slowed growth. Conversely, energy exporters outside the immediate conflict zone, such as Nigeria, Angola, and Algeria, have seen temporary improvements in their current account and fiscal positions due to higher revenues.

To manage these shocks, several governments have introduced fuel subsidies and price caps, though these measures add to fiscal pressures and debt vulnerabilities in many emerging markets. China has remained relatively insulated thus far due to its substantial strategic petroleum reserves and high share of renewable energy.