World Bank flags energy crisis risk as Brent hits forecast high

The World Bank has lowered its global growth forecast for 2026 to 2.5%, citing the impact of the ongoing war in the Middle East, and warned that growth could slow further to just 1.3% if energy supply disruptions intensify and are accompanied by significant financial market stress, Reuters reports.

The bank’s semi-annual Global Economic Prospects report said global growth reached 2.9% in 2025, revised up by 0.2 percentage point from its January estimate. However, the 2026 outlook has been cut by 0.1 percentage point compared to January, marking the weakest projection since the COVID-19 pandemic that began in late 2019.

The World Bank also highlighted risks stemming from energy markets, noting that its baseline forecast assumes an average Brent crude oil price of $94 per barrel in 2026, up 36% from 2025 levels.

The projection comes amid heightened volatility in global energy markets linked to the conflict triggered by U.S. and Israeli strikes on Iran on February 28. The war, now in its fourth month, has pushed energy prices higher due to the closure of the Strait of Hormuz, fueling inflationary pressures worldwide and increasing expectations of tighter monetary policy across many economies. Fertilizer prices have also surged, raising concerns over a potential global food supply crisis.

Oil prices rose nearly $2 on June 10 after U.S. President Donald Trump said the United States would attack Iran “very hard” if no peace deal was reached, following one of the most significant exchanges of fire since an April ceasefire.

The World Bank said its baseline scenario assumes energy supply disruptions will ease by the end of July, with global headline inflation expected to average 4%. However, it warned that risks remain highly sensitive to further escalation.

Under a more severe scenario, the bank said global growth could slow to 2.1% if energy disruptions persist and Brent crude averages $115 per barrel in 2026, a level that could push inflation to 4.4%. In an even more adverse scenario, growth could fall to just 1.3% if an energy shock spreads into financial markets, leading to lower energy prices, increased volatility, and weakened investor confidence.

“These risk scenarios show how quickly the outlook could weaken if energy and financial pressure reinforce each other,” said Ayhan Kose, the World Bank’s deputy chief economist. He added that if an energy shock triggers financial market turmoil, confidence could deteriorate rapidly.

Global growth is expected to recover to 2.8% in 2027 and 2028, but remains 0.4 percentage point below the average levels seen in the 2010s. World Bank Chief Economist Indermit Gill attributed the weaker long-term outlook to slower population growth, weaker private and public investment, rising public debt, and slowing global trade.

“The world economy is a lot less resilient today than it was in 2008 and even as compared with 2018,” Gill told reporters, warning that the coming years would be marked by high policy uncertainty, persistent inflationary pressures, and elevated interest rates.

The report also warned that weak growth in developing economies has stalled convergence with advanced economies, with dozens of countries outside China and India facing a “lost decade” in which they have made no progress in narrowing per capita income gaps.

Developing economies are expected to grow by 3.6% in 2026, down from 4.4% in 2025, reflecting the broader impact of the conflict and global financial tightening.

The World Bank maintained its forecast for the U.S. economy at 2.2% growth in 2026, easing slightly to 2.1% in 2027 and 2% in 2028. The euro area is projected to grow by 0.8% in 2026, down from 1.4% in 2025, while Japan’s GDP is expected to expand by 0.7% in 2026, compared to 1.1% in 2025.

China’s economy is forecast to grow by 4.2% in 2026, a downward revision of 0.2 percentage point following 5% growth in 2025.

The Middle East, North Africa, Afghanistan and Pakistan region saw one of the steepest downgrades, with growth cut by 2.7 percentage points to 1.6% in 2026, down from 4% in 2025, though the bank expects a rebound to 5% in 2027.

The United Arab Emirates is projected to grow by 2.4% in 2026, sharply lower than the January forecast of 5% and the 6.2% recorded in 2025. Turkey’s growth forecast was also reduced by 0.9 percentage point to 2.8%.

Despite global headwinds, India remains the fastest-growing major economy, with GDP expected to expand by 6.6% in 2026 after 7% growth in 2025, with the World Bank noting that strong growth momentum is expected to persist over the coming decades.

By Vafa Guliyeva