The ongoing conflict in the Middle East is poised to significantly disrupt the global economy, even if current ceasefire efforts succeed, according to Ajay Banga, President of the World Bank. In a recent interview, Banga cautioned that the war’s economic consequences could ripple across nations, reducing global growth and intensifying inflationary pressures. While a temporary ceasefire announced by U.S. President Donald Trump offers some hope, its sustainability remains uncertain amid continued tensions involving Iran and Israel. According to World Bank estimates, global growth could decline by 0.3 to 0.4 percentage. However, if the war persists, the slowdown could reach as much as 1 percentage. Emerging markets and developing economies are expected to be hit hardest. Growth projections for these regions have already been revised downward to 3.65% for 2026, from an earlier estimate of 4%. In a prolonged conflict scenario, growth could fall further to 2.6%. Inflation is also expected to surge. Forecasts suggest inflation in developing countries may rise to 4.9% in 2026, with worst-case scenarios pushing it as high as 6.7%. The war has already driven oil prices up by nearly 50%, while disrupting supplies of essential commodities such as gas, fertilizer, and helium. Tourism and global air travel have also been adversely affected. A key concern remains the stability of the Strait of Hormuz, a critical global oil transit route. Any prolonged disruption in this region could further strain energy markets and infrastructure. Many developing nations are already grappling with high debt and limited fiscal space. Rising energy costs are making it harder for these countries to respond effectively without risking long-term financial instability. The World Bank has advised governments to implement targeted and temporary relief measures rather than broad, unsustainable subsidies. It is also offering support through crisis-response funding mechanisms that allow quicker access to previously approved funds. The crisis has underscored the importance of energy diversification and self-reliance. Banga pointed to Nigeria as a positive example, where a $20 billion investment by the Dangote Group in refinery infrastructure has strengthened domestic energy security and boosted regional fuel supply. Similarly, the World Bank is working with Mozambique to expand its natural gas and hydropower capacity. The institution has also lifted its previous restrictions on funding nuclear energy projects, signaling a broader strategy to meet rising global energy demands through a mix of nuclear, hydro, geothermal, wind, and solar power. A prolonged conflict could deepen economic instability, disrupt energy infrastructure, and place additional strain on already vulnerable economies. I think The Shifting Global Order is going to happen America will vacate its military bases in some countries, and the security bloc will break. To rebuild Iran, a tax will be collected from the Strait of Hormuz. Iran will no longer face certain sanctions. And now, the world has entered a new era. In my opinion, the concept of a superpower had already ended the moment America withdrew from Afghanistan. But now, alliances are going to be formed between the West and the Global South. Trade markets will be established, and the world will continue to announce its realignments in the form of blocs and America relations with India are going to become excellent. Israel and America will remain in two Gulf countries. Attempts will now be made to destroy Saudi Arabia through proxies. And mark my words, the next battleground will be set in Saudi Arabia and the United Arab Emirates. Many countries, including Saudi Arabia, will rely on China and Pakistan for security.
Writer:
Assistant Professor, Commerce and Management
Guru Kashi University Punjab.