Nobody knows when this ends. And that, analysts say, is precisely the problem.
The conflict in the Middle East has already rattled energy markets and the global economy. According to Tom Gale, Executive: Trading at Standard Bank, the most important variable isn't what's happening on the ground, it's what happens next.
The International Monetary Fund (IMF) agrees – its latest World Economic Outlook report warns that the true cost of the conflict will hinge on its duration, intensity, and scope – factors that remain inherently unpredictable.
The real transmission channel: energy
At the centre of the global economic outlook right now is one key factor: oil.
So far, the conflict has caused the loss of a billion barrels of supply and triggered a sharp spike in short-term energy prices. The oil curve has moved into “steep backwardation” since the outbreak, meaning crude for near-term delivery is trading significantly higher than for delivery later in the year.
Gale cautions that this may reflect a degree of complacency in how markets are pricing risk. “The risk at the moment is that the oil curve is underpricing the risks of prolonged conflict or disruption. But that has started to change.”
Contracts for November 2026 delivery are currently trading at $81 (at the time of writing), “which is better, but not ideal”, says Gale. Before the crisis, this was at $68.
Amrita Sen, co-founder and director of research at Energy Aspects, goes further, warning at a recent panel discussion that oil flow through the Strait of Hormuz may never return to pre-war levels – a sign that the supply shock could persist long after the fighting stops.
She expects about 450-million barrels of clean products, like gasoline, to be lost to the war. That forecast assumes a 50% reopening of the Strait of Hormuz in May.
With front-end oil prices above $100 potentially extremely damaging to the global economy, Gale is unequivocal:
"Without question, we’re now facing an energy crisis that will have knock-on effects on all areas of the global economy. What matters most is how long the conflict and resulting disruption to oil, gas and other shipments from the Persian Gulf will last."
He adds: "The global economy can withstand a brief shock, but if energy prices remain elevated for months, avoiding a significant growth shock becomes tricky".
Recession risk
Economist Xhanti Payi says the risk of a recession is “quite real”.
“We are coming out of a fairly vulnerable period, having recovered from Covid-19 and last year’s US tariff shock and its trade impacts.
“Now, we are entering a new crisis, one with particularly important implications for logistics and energy, and we remain exposed to these vulnerabilities. In that context, it’s difficult to say anything other than that we are facing a serious downward trend,” Payi said in an interview on Moneyweb@Midday.
The IMF report puts hard numbers to that fear, outlining three global economic scenarios stemming from the conflict: a reference forecast, an adverse scenario, and a severe scenario.
“Our reference forecast assumes a short-lived conflict and a moderate 19% rise in energy prices in 2026. Still, some damage is unavoidable. Global growth falls to 3.1% this year, a downgrade from January forecasts (3.3%), and headline inflation rises to 4.4%,” IMF chief economist Pierre-Olivier Gourinchas said at the launch of the report.
The picture darkens considerably from there. If disruptions deepen, the IMF warns growth could fall as low as 2.5% this year, with inflation reaching 5.4%. In the most severe scenario, where energy supply disruptions extend into next year, global growth drops to 2% in both 2026 and 2027, with inflation exceeding 6%.
"Downside risks are clearly elevated," Gourinchas said.
Inflation and interest rates
Higher energy prices don't stay in the petrol price for long; they filter through to the cost of almost everything. Gale warns that US inflation could jump above 4% and SA inflation above 5% if prices remain where they are – both well above central bank targets.
The question for policymakers is how to respond. Gale says central banks may opt to look through temporary inflation if they see signs of energy-price moderation.
“But if they see signs that inflation is taking hold – through wage-price spirals or rising expectations among households and businesses – then they’ll need to take action,” Gourinchas says.
That moment may already be approaching. Gale says markets have not only abandoned hopes of interest-rate cuts, but are pricing in hikes across all major economies, including South Africa, where forward rate agreements point to a hike at the May Monetary Policy Committee meeting.
Uneven impact
According to the IMF, the war’s impact will be uneven. Commodity-importing emerging market and developing economies are at risk of being hit harder, especially those with pre-existing vulnerabilities and limited buffers, with currency depreciation likely to amplify higher energy and food costs. While the IMF points to particularly severe damage in Gulf countries, the broader picture across emerging markets is more nuanced.
Gale says that, broadly speaking, emerging markets are better prepared for shocks than in the past. “But it’s also true that those countries that produce oil will be in a stronger position than those that are dependent on imports and have limited access to dollars or capital inflows,” he says.
Trade-offs needed
The IMF report suggests that the current hostilities in the Middle East pose immediate policy trade-offs: between fighting inflation and preserving growth, and between supporting those affected by the rising cost of living and rebuilding fiscal buffers.
It states: “Amid frequent global shocks, countries need to calibrate policies to ensure that they not only step up to the moment, but also stand up to the next test.”
One area where that capacity to absorb shocks is increasingly being tested is energy. Brussels-based economic think tank Bruegel argues that only a structural reduction in fossil fuel import dependence can durably shield economies from recurring geopolitical shocks – a view echoed by Gourinchas.
He says the current conflict should accelerate the shift towards renewable energy, strengthening resilience to energy shocks, improving energy security, and supporting the climate transition.
According to Dr Penny Byrne, ESG and climate change analyst at SBG Securities, “At current crude prices, solar and wind continue to represent the cheapest source of new electricity generation in a large majority of countries, and the competitive case has strengthened further”.
In an interconnected world, the cost of conflict is never contained to the battlefield – and the longer instability persists, the further that cost spreads. The question for businesses, investors, and policymakers alike is how to prepare for it.
The views and opinions shared are for informational purposes only. They are not intended to serve as investment advice and do not represent the views or opinions of Standard Bank. This information should be used as a starting point for generating investment ideas and should not be relied on as the basis for making investment decisions. The Standard Bank of South Africa Limited will not be responsible for the results of any investment decisions made based on the views provided.
