A soldier observes the Iranian commercial ship M/V Touska from a US warship during a maritime blockade in the Middle East on April 20, 2026. Disclosure/US Navy The escalation of hostilities between the United States and Iran could reignite inflation, raise interest rates and reduce global growth to up to 1.3%, compared to 2.9% last year, the World Bank's chief economist, Indermit Gill, told Reuters. Gill, who retires at the end of August, said the bank developed three scenarios for its June economic forecast, given the heightened uncertainty surrounding the war in the Middle East. In an interview on Tuesday night, he stated that the worst of them, which predicts hostilities for six months or more, is already close to materializing. In this case, global inflation would reach 4.5%. Prolonged conflict and damage to the region's oil infrastructure could also worsen food insecurity by disrupting shipments of fertilizer, helium and sulfur, triggering a range of knock-on effects such as higher interest rates, Gill said. The statements are the first from a high-ranking World Bank official since the sharp escalation of tensions between Washington and Tehran and the end of the ceasefire, which had raised hopes of a less severe impact of the conflict.
Escalation of war in the Middle East could reduce global growth to 1.3% in 2026, says World Bank
A soldier observes the Iranian commercial ship M/V Touska from a US warship during a maritime blockade in the Middle East on April 20, 2026. Disclosure/US Navy The escalation of hostilities between the United States and...
The war intensified this week, with U.S. forces bombing targets in southern and western Iran and Tehran attacking U.S. facilities in Bahrain, Kuwait and Jordan. Maritime traffic in the Strait of Hormuz remains interrupted, while Yemen's Houthis, allies of Iran, announced a naval blockade of shipments from Saudi Arabia through the Bab el-Mandeb Strait, a strategic passage that gives access to the Red Sea. Oil surpasses US$95 for the first time since June after the escalation of the war between the US and Iran Gill said that poor countries that have not yet recovered from the effects of the Covid-19 pandemic may face greater food insecurity. The most indebted nations tend to be affected by increased financing costs, as interest rates rise and reduce the resources available for education, health and other essential services. “My personal impression is that we're maybe a few months away from that, you know, because we haven't started to see benchmark interest rates rising yet,” he said. According to Gill, if inflation accelerates, it could only take a few months for highly indebted countries to face difficulties in honoring their debt payments. Signs of pressure have already started to appear. Some countries experiencing financial difficulties have asked the International Monetary Fund to expand existing loans. In addition, Pakistan this week asked the United States for a US$10 billion exchange rate stabilization line, a source with knowledge of the matter told Reuters. The forecast released by the World Bank in June showed that 40% of low- and middle-income countries were already in debt distress or were at high risk of reaching that point. That equates to 32 countries, but the number could increase quickly if interest rates rise, Gill said. He added that other nations could see their long-term growth prospects worsen even without defaulting or defaulting on debt payments. “It’s just a slow-motion disaster,” Gill said. According to him, countries pressured by the weight of debt will end up consuming resources that could be allocated to education, health and other essential areas to sustain future growth. The average debt-to-GDP ratio for emerging and developing countries was around 74% in 2025, well above the 50% to 55% recorded before the pandemic, according to World Bank data. In low-income countries, the indicator reached 67%, compared to around 40% in the pre-pandemic period. Some countries will need debt forgiveness, analyzed on a case-by-case basis, Gill said. Gill noted that the world's largest economies — the United States, China and India — remain relatively protected from the effects of war, each supported by different resilience factors. Developing countries, however, face significantly greater risks.
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