Middle East Crisis Sparks Global Economic Consequences

Global Energy Crisis and Economic Fallout

Brent crude prices have surged above $100 a barrel as oil and gas fields come under attack in the Middle-East conflict, which is now in its third week. The Indian crude basket has reached $156 a barrel as of March 19, while Iran's attack on Qatar's LNG hub has sent gas prices soaring.

The Bank of England has weighed in on the situation, stating that the conflict is expected to be relatively short-lived, but warning of upside risks to oil and gas prices in the coming months. The bank noted that energy supply may take time to recover, even if the conflict abates, and that efforts to rebuild stocks and raise awareness of vulnerabilities in the global energy network could sustain higher prices.

The WTO has projected global GDP growth at 2.8 percent in 2026, but this baseline scenario assumes that nothing else goes wrong. However, a scenario where both crude oil and liquefied natural gas (LNG) prices remain elevated throughout 2026 would shave 0.3 percentage points off the GDP forecast for 2026.

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The US Fed has revised its median GDP growth estimates for 2026 up to 2.4 percent from 2.3 percent in December 2025, while growth estimates for 2027 have also been revised higher. Inflation projections have also gone up, and the Fed Funds futures markets no longer expect any rate cuts this year.

Equity markets have been affected by the crisis, with the MSCI All-Country World Index down 5.8 percent this month as of March 19. However, there are wide variations in performance, with MSCI Norway up 7.8 percent this month due to soaring oil prices.

MSCI US has slipped into negative territory, down 3.9 percent this month to March 19, while MSCI France and Germany are down over 9 percent this month in local currency terms due to high gas prices. MSCI India is lower by 8.4 percent, almost the same as the Emerging Markets index.

Brokerages have cut their 2026-end Nifty targets, and investors are facing a challenging environment with higher yields compressing bond portfolios, stock market corrections, and gold offering no respite.

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