The Organisation for Economic Co-operation and Development has lowered its global growth projection to 2.9% for 2026, warning that escalating geopolitical tensions and energy supply disruptions are weighing heavily on international trade and economic stability.
In its latest Interim Economic Outlook, the OECD highlighted that the ongoing conflict in West Asia and resulting disruptions in energy flows particularly through the Strait of Hormuz are creating significant risks for global trade. The strait is a critical route for oil shipments, and any sustained disruption is expected to impact supply chains, raise transportation costs, and fuel inflationary pressures worldwide.
The report projects inflation across G20 economies to remain elevated at around 4.0% in 2026, reflecting rising energy and commodity prices. According to the OECD, higher fuel and fertiliser costs are likely to affect both industrial production and agricultural trade, with developing economies facing the greatest vulnerability.
OECD Secretary-General Mathias Cormann cautioned that prolonged disruptions in energy markets could lead to structural imbalances in the global economy. He noted that rising energy prices could translate into higher food inflation, increased fiscal pressures, and tighter financial conditions, all of which would weigh on trade flows.
The growth outlook for major economies reflects these pressures. The OECD expects the United States to grow by 2.0% in 2026, while the euro area is projected to expand by just 0.8%, highlighting its exposure to energy price volatility and external trade shocks. China’s growth is also expected to moderate to 4.4%, indicating slower momentum in global manufacturing and exports.
Energy and logistics disruptions are already affecting trade routes. Shipping delays, higher insurance premiums, and longer transit times due to rerouting are increasing the cost of moving goods across regions. Industries reliant on petroleum-based inputs, including chemicals and manufacturing, are facing supply constraints, which could further dampen trade activity.
The OECD also flagged risks to agricultural trade, particularly from rising fertiliser costs. With a significant share of fertiliser supplies linked to energy markets, price increases could affect crop production and exports in key regions, potentially driving food inflation and impacting global food security.
For trade-dependent economies like India, the outlook underscores both challenges and the importance of diversification strategies. India imports a large share of its crude oil requirements, making it sensitive to global energy price movements. However, policy measures such as expanding domestic production, diversifying import sources, and maintaining strategic reserves are expected to help mitigate short-term shocks.
The OECD emphasized that policy responses will play a critical role in managing the impact of these disruptions. It called for targeted support measures to address energy cost pressures while avoiding broad subsidies that could strain public finances. The organization also reiterated the importance of keeping trade channels open, noting that reducing trade barriers can help lower costs and support economic growth.
In addition, the report highlighted the need to accelerate investments in renewable energy and strengthen supply chain resilience to reduce dependence on vulnerable chokepoints. Enhancing trade facilitation and maintaining stable policy frameworks are seen as essential to sustaining global trade momentum.
The outlook comes at a time when global trade is already facing multiple headwinds, including geopolitical fragmentation and evolving supply chain dynamics. While the OECD baseline assumes that current disruptions will ease over time, it warned that prolonged instability could lead to deeper economic slowdown and increased volatility in global markets.
As policymakers prepare for upcoming international trade discussions, the OECD’s assessment reinforces the growing link between energy security and trade performance. With inflation pressures persisting and growth slowing, the global economy faces a challenging environment where maintaining open and resilient trade systems will be critical to avoiding a broader downturn.