OECD Warns of Global Slowdown: How the Iran War Is Hitting the World Economy

Here's what you need to know this week, and why it matters.

For context, the OECD is an organisation that tracks the health of the global economy. It published its June outlook this week, and the numbers are worth paying attention to. Global growth is expected to slow from 3.4% in 2025 to 2.8% in 2026.

That's the baseline. If the US-Iran conflict continues and the Strait of Hormuz remains disrupted, that number could fall to 2.1%. Anything below 2.5% is widely considered a danger zone for a global recession, so we're not talking about a distant worst-case scenario anymore.

The Strait of Hormuz is a narrow waterway connecting the Persian Gulf to the open ocean. Around 20% of the world's oil supply passes through it every day, making it one of the most strategically important points on the map.

When it closes, energy prices rise and rising energy costs don't just mean your gas gets more expensive. They work their way into everything including your groceries, your electricity bill, and the girls' trip that somehow costs more every time you check.

Businesses face higher costs, investment slows, and growth weakens. That chain reaction is exactly what the OECD is warning about.

Right now, every major central bank is caught between two decisions. Cutting interest rates would help growth, but risks making inflation worse. Holding rates steady protects against inflation, but risks tipping the economy into recession.

The OECD's worst-case projection of 2.1% isn't a scare tactic. It's what happens when people have less to spend, businesses stop hiring, and governments run out of room to help, all at the same time.

The longer Hormuz stays disrupted, the closer we get to testing that number.

What Actually Matters This Week

What's Moving in Markets

The US dollar is strengthening. In uncertain environments, investors tend to move into dollar-denominated assets, and it's one of the most reliable patterns in global markets. That dynamic is reinforced here by the fact that the Federal Reserve cannot cut interest rates while inflation remains elevated, which keeps US yields attractive to international investors. Both forces are working in the dollar's favour simultaneously.

Emerging market currencies are under the most pressure. Countries like Turkey, South Africa, and Indonesia are net importers of energy. This means they pay more when oil prices rise. Their fiscal positions offer limited room to absorb that shock, and capital is flowing away from them toward stronger, higher yielding assets. It's a compounding problem.

In equity markets, the divergence between sectors is notable. Energy companies are benefiting directly from supply constraints, with less supply meaning higher prices and stronger revenues. But technology and AI stocks are facing a less obvious headwind. The physical infrastructure that powers artificial intelligence, including data centres, servers, and processing hardware, is extremely energy-intensive. When energy gets significantly more expensive, the economics of building and running that infrastructure deteriorate. This is a detail the OECD specifically flagged, and one that isn't getting enough attention in mainstream coverage.

Credit markets are also tightening. When uncertainty rises, the cost of borrowing for companies increases. That feeds directly into lower business investment and slower hiring, effects that tend to show up gradually over months rather than immediately.

Asset Direction

Currency & Interest Rate

How It All Connects

What makes this shock particularly difficult to manage is that it's supply driven, not demand driven. Standard monetary policy, which involves raising or lowering interest rates, is designed to manage the pace of spending in an economy. It doesn't address a physical shortage of energy moving through a geographic chokepoint. Central banks raising rates can slow demand, but they can't reopen a shipping lane. That's why this scenario puts policymakers in such a difficult position: the tools available don't match the problem.

The OECD's specific mention of AI infrastructure is worth noting. Large scale AI projects, including data centres, computing clusters, and hardware buildouts that underpin the sector's growth, require significant amounts of electricity. When energy costs rise sharply, the financial case for those investments weakens. Some projects will be delayed or scaled back, which has broader implications for one of the market's most closely watched sectors.

Why This Matters to You

The broader market picture. Global markets are in risk-off mode, meaning investors are moving away from equities and higher risk assets and toward safer options like government bonds, gold, and the dollar. This isn't a crisis, but it's a sustained shift in sentiment that's likely to continue while Hormuz remains disrupted. Interest rate cuts, which many businesses and borrowers have been anticipating, are now significantly further away than they were six months ago.

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