The economic shockwaves from the war in the Middle East are poised to travel far beyond the battlefield, with the World Bank warning that developing nations could face slower growth, faster inflation, and deeper fiscal strain even if a fragile ceasefire holds.
World Bank President Ajay Banga said the conflict is already creating a cascading impact on the global economy, as surging oil prices and supply disruptions threaten to weigh heavily on emerging markets that are still struggling with debt, high borrowing costs, and limited fiscal room to respond.
He warned that the fallout could become far more severe if ongoing efforts to stabilize the region collapse and fighting escalates again.
Under the bank’s baseline scenario, which assumes the war ends relatively early, global growth in emerging markets and developing economies could still lose 0.3 to 0.4 percentage point.
That would pull projected 2026 growth down to 3.65%, lower than the 4% estimate issued in October. In a more damaging scenario where the war drags on, growth could plunge to as low as 2.6%, while inflation could climb sharply from an earlier forecast of 3% to 4.9%, or even as high as 6.7% in a worst-case outcome.
The conflict has already driven oil prices up by around 50%, while also disrupting supplies of gas, fertilizer, helium, and other critical goods, with tourism and air travel also taking a hit.
For poorer and energy-importing nations, that combination is particularly dangerous, threatening to squeeze household budgets, widen government deficits, and undermine already fragile recovery efforts.
Banga said much now depends on whether current ceasefire efforts lead to a more durable peace and the reopening of vital trade routes such as the Strait of Hormuz. Without that, he suggested, markets could face a longer period of instability that would hit energy infrastructure and prolong global uncertainty.
At the same time, the World Bank is urging governments not to overreact with costly blanket subsidies that could do more harm than good in the long run. Banga said countries should focus on targeted measures that address immediate pain points without further damaging already limited fiscal space. That warning is especially urgent for heavily indebted developing economies that may have little capacity left to absorb another major external shock.
The crisis is also sharpening the case for long-term energy security. Banga pointed to Nigeria as an example of how domestic investment in refining capacity can cushion a country from global turmoil, citing the Dangote Group’s massive refinery investment as a strategic advantage during the current disruption.
He also said the World Bank is working with countries such as Mozambique to expand natural gas and hydropower production, while pushing broader investment in nuclear, geothermal, hydro, wind, and solar energy.
For the World Bank chief, the lesson is becoming harder to ignore: countries that fail to diversify their energy mix and strengthen self-sufficiency may remain dangerously exposed every time geopolitical conflict sends commodity markets into chaos. The war may be centered in the Middle East, but for much of the developing world, its economic aftershocks are already arriving.
