The global economy, because of the conflict in the Middle East in 2026, has faced an unprecedented combination of geopolitical and economic challenges.
The Middle East Conflict as a New Global Shock
According to UNCTAD’s report “Trade and Development Prospects 2026,” the world economy entered 2026 with stronger indicators than expected, thanks to dynamic trade and investment in artificial intelligence. However, the situation changed sharply after the escalation of geopolitical tensions in late February 2026. The Middle East conflict disrupted energy markets, financial conditions, and key maritime routes, including the Strait of Hormuz — a critically important passage for global oil and gas trade.
The economic consequences were immediate and large-scale: oil prices rose by more than 60%, gas prices doubled, and financial volatility surged sharply in bond, equity, and currency markets. The World Bank, in its report “Global Economic Prospects,” notes that the conflict led to large-scale disruptions in exports of energy and other commodities from the Persian Gulf region, causing a sharp rise in prices. The baseline forecast assumes that the most acute phase of the disruptions ended by July 2026, and shipping volumes through the Strait of Hormuz will largely recover by the end of the year.
Slowing Global Growth and Trade
In its July edition of the “World Economic Outlook,” the IMF lowered its forecast for global economic growth in 2026 to 3.0%, 0.1 percentage point below its April forecast. Growth is expected to recover to 3.4% in 2027, but this is still below the 2024–2025 average of 3.5%. The IMF particularly highlights three key risks: continuation of the war in the Middle East, fragmentation of global trade, and a correction in artificial intelligence market expectations.
The dynamics of global trade are especially troubling. The IMF forecasts a slowdown in world trade growth from 5% in 2025 to 3.5% in 2026. Notably, 2025 growth was partly driven by companies rushing to build up inventories ahead of the introduction of American tariffs, creating a “borrowing growth from the future” effect. UNCTAD, in turn, estimates growth in trade in goods and services in 2026 at approximately 4% in constant prices, but emphasizes that the increase in trade values is largely due to rising prices rather than physical volumes.
The most dramatic forecast concerns goods trade: UNCTAD expects growth in world merchandise exports to slow from 4.7% in 2025 to only 1.5–2.5% in 2026. This forecast reflects serious disruptions in maritime shipping, rising insurance costs, and higher risk premiums, especially for tankers carrying oil and liquefied natural gas.
Protectionism and Trade Interventions: A Record Level
Alongside geopolitical shocks, the world is experiencing an unprecedented surge in protectionism. According to data from the WTO and IMF, global trade policy activity in early 2026 reached a historic high: the level of interventions from January through May 2026 was almost double the 2024 figures and about 25% above the 2025 average. This increase was overwhelmingly driven by restrictive measures — tariff increases and import bans — while trade liberalization measures lost relative momentum.
IMF Managing Director Kristalina Georgieva, in her speech in Washington in July 2026, stated that since 2025 the number of new trade barriers has tripled. By her estimates, further fragmentation of the world economy could lead to losses of up to 2% of global GDP over the next five years, and in the worst case, up to 7%. The IMF warns that the world is dividing into geopolitical blocs, and if this trend continues, losses could reach levels comparable to the period immediately after the end of World War II.
A telling example of protectionist escalation was the US decision to introduce new Section 301 tariffs on its 60 largest trading partners, covering more than 99% of American imports, with rates ranging from 10% to 12.5%. The European Union, in turn, reached a preliminary agreement to cut steel imports by almost half and impose a 50 percent duty on above-quota shipments.
Fragmentation and Reconfiguration of Global Supply Chains
Geoeconomic fragmentation has ceased to be a theoretical concept and has become a practical reality. As participants in the spring 2026 meetings of the IMF and World Bank noted, trade, investment, and technological exchange are increasingly determined by geopolitical alliances rather than considerations of cost-effectiveness. Global supply chains are being restructured with priority given to security.
UNCTAD records specific manifestations of this trend: trade between China and the United States has fallen by more than 20% since 2024, while East Asia has expanded trade with both China and North America. Export controls, investment screening, and supply chain conditions are making strategic sectors increasingly inaccessible to new entrants. Governments are increasingly using industrial, trade, financial, and technological policy to achieve economic and national security goals.
Asymmetric Consequences for Developing Economies
The consequences of current processes are extremely uneven. Developing economies dependent on imports of fuel, food, and fertilizer have proven most vulnerable. Rising energy prices and disruptions related to the Strait of Hormuz increased import costs and intensified pressure on inflation and external balances. A number of developing countries, including Bangladesh, Brazil, Egypt, India, Indonesia, Mexico, Pakistan, and others, were forced to introduce measures to manage rising fuel prices.
Financial conditions for developing countries also deteriorated sharply: currencies weakened against the dollar, emerging stock markets fell by more than 12% between February 28 and March 29, 2026, and yields on external sovereign bonds rose. UNCTAD particularly warns about the vulnerability of frontier markets, whose financial markets are smaller and less liquid.
At the same time, Asia demonstrates remarkable resilience: according to UNCTAD forecasts, the region will account for 59% of global growth in 2026, with India growing by 7.3%, China by 4.5%, and Indonesia by 5.2%. However, the industrial path that ensured Asia’s rise is becoming increasingly difficult for other developing regions to replicate.
Some Conclusions About the Future of the World Economy
An analysis of the current situation allows several key conclusions to be formulated.
First, geopolitics has become the dominant factor determining the trajectory of the global economy. The Middle East conflict did not merely cause a temporary shock — it accelerated the structural transformation of the world trading system, in which security considerations increasingly prevail over economic efficiency.
Second, protectionism has entered a qualitatively new phase. The record level of trade interventions and the unprecedented use of tariffs as an instrument of geopolitical pressure indicate that the multilateral trading system based on WTO rules is under threat. As the WTO notes in its report “World Trade 2026,” the multilateral trading system faces its most serious challenge in more than 80 years, and the choice between “strengthening cooperation” and “deepening differences” will determine the prosperity or decline of the global economy for decades to come.
Third, the asymmetry of consequences is intensifying global inequality. The most vulnerable economies — developing countries dependent on energy imports and lacking access to AI technologies — bear disproportionately high costs. By 2028, developing economies (excluding China and India) collectively will not have advanced in closing the income gap with developed countries since the start of the COVID-19 pandemic.
The Current Crossroads of the World Economy
The global trading system in 2026 is at a crossroads. Economic fragmentation, driven by geopolitical contradictions, protectionist measures, and supply chain restructuring, creates serious risks for global growth and development. The IMF and UNCTAD unanimously warn: without coordinated action by the international community, the world may face further trade slowdown, rising inflation, and a widening gap between economies.
However, this crisis also contains opportunities. Accelerating investment in renewable energy and critical technologies is becoming not only a matter of economic efficiency but also of economic security. Developing countries able to adapt their policies to new realities can find their niche in restructuring global value chains. The key task for world leaders is to find a balance between legitimate national security considerations and preserving an open, predictable, and inclusive trading system that remains the most reliable engine of global prosperity.
Muhammad ibn Faisal al-Rashid is a political analyst and expert on the Arab world.
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