Global economic upheaval: Who is most affected by the war against Iran

Although the conflict is reminiscent of David vs. Goliath, Iran in just a few weeks managed to knock out the world economy out of balance. The consequences can be roughly reduced to two things: increased prices and weaker growth, he writes DW.

In the blog of the International Monetary Fund (IMF) states that the entire world economy has been affected in the meantime. However, not everyone feels the consequences equally. Energy-importing countries are affected more than energy exporters, poor countries more than rich ones, and countries with little or no reserves feel the effects more strongly than those with large reserves.

Less energy - more expensive production: Asia most affected, except China

One of the main causes is disruption in global supply energy.

According to the International Energy Agency (IEA), the war with Iran caused the largest supply disruption in the history of the global market OIL. The global supply of liquefied natural gas has decreased by about 20 percent.

"Consequences of de facto closure." Strait of Hormuz Asian countries are particularly hard hit, because up to 90 percent of oil and gas imports come from the Persian Gulf," states the German foreign trade agency Germany Trade & Invest (GTAI).

Above all, in South and Southeast Asia, the consequences are already visible in the form of rising energy prices and supply problems.

This is why governments in many countries intervene in the economy with measures such as releasing reserves to the market or subsidies.

China, as the world's largest importer of raw materials, is less dependent on the Middle East. Since it is connected by gas pipelines to Russia and has large reserves, it is less dependent on tanker deliveries, according to GTAI.

Photo: AP Photo/Altaf Qadri

Supply chain disruptions are hitting the chip industry

According to the IMF, the war has affected many supply chains. Tankers and container ships have to change routes, and air traffic over important hubs in the Persian Gulf region has also been disrupted.

This increases shipping and insurance costs and lengthens delivery times.

The Asia-Pacific region, whose supply chains were closely linked to the Middle East, was particularly affected. For example, when it comes to basic raw materials for fertilizers, plastic production or gases needed for the important semiconductor industry.

If the energy-intensive chip industry in Asia is affected, the consequences will eventually be felt by industrial countries. Chips and semiconductors from Taiwan, China and South Korea are needed for electronic devices, cars, airplanes, but also for artificial intelligence.

"About 90 percent of modern chips are produced in Taiwan," said Tanjef Shat from the PwC consulting firm to tagesschau.de. Without gas supplies from Qatar, Taiwan may soon be forced to rationalize its energy consumption.

In addition, helium is needed to manufacture chips. A large part of the world's supply has so far been produced in Qatar.

Manufacturing smartphones requires production lines in India, China and Vietnam.

Affected supply chains and food production

Disrupted supply chains affect both everyday goods and key production assets. For example, not enough fertilizers reach the world market anymore, because the trade in urea, ammonia and phosphates takes place through the Strait of Hormuz, which is now blocked.

In addition, half of the world's sulfur is transported through the Strait of Hormuz. Sulfur is needed for the production of fertilizers, but also for the chemical industry or the processing of critical minerals.

Since the beginning of the year, mineral fertilizers have risen in price on world markets by around 30 to 40 percent, says Philip Spine, director of the German Raiffeisen Association (DRV). The direct effects on Europe are so far small. "Europe has been importing almost no fertilizers from conflict regions for years," states the Industrial Association of Agrarians, but mostly produces them itself. However, since gas is needed for production, prices could rise in Europe as well if the war continues. This would further increase food prices.

In low-income countries, food accounts for about 36 percent of total consumption on average, in developing countries 20 percent, and in industrialized countries nine percent. In many countries of Africa, parts of the Middle East and Central America, people therefore spend a large part of their income on food - so the rise in food prices particularly affects them.

But even in Europe, further price growth caused by energy would further increase the existing pressure of living costs, warns the IMF.

What are the OECD forecasts?

The OECD expects an improvement only in 2027.

Despite everything, the Organization for Economic Co-operation and Development (OECD) believes that global GDP growth will remain broadly stable at 2,9 percent in 2026 and could rise to three percent in 2027. Growth should be fueled by investments in technology and a gradual reduction in effective customs rates.

Still, the war with Iran is slowing the economy and creating significant uncertainty about global demand. This forecast is based on the assumption that the current disruptions in the energy market are temporary and that prices will normalize again from mid-2026.

Inflation in the G20 countries in 2026 could be around four percent, which is 1,2 percentage points higher than previously expected, according to the OECD. A drop to 2,7 percent is predicted for 2027, as the pressure of rising energy prices should weaken.

GDP growth of two percent is expected for the USA this year, and around 1,7 percent in 2027. In the Eurozone, growth could be 0,8 percent in 2026 and 1,2 percent in 2027. The growth of the Chinese economy should slow to 4,4 percent in 2026 and 4,3 percent in 2027.

According to one forecast, the countries of the Persian Gulf could slip into recession in the first half of the year due to the war with Iran. The British economic institute Oxford Economics expects a drop in economic activity of 0,2 percent in the countries of the Gulf Cooperation Council (Saudi Arabia, Oman, Qatar, Bahrain, Kuwait and the United Arab Emirates). This represents a downward revision of growth expectations by 4,6 percentage points compared to the pre-war period.

The German economy is weakening significantly

When it comes to the German economy, leading German economic institutes have significantly reduced their forecasts. In a joint analysis for the federal government, they now expect gross domestic product growth of only 0,6 percent for this year. And for 2027, economists have significantly lowered expectations - to 0,9 percent.

Due to higher energy prices, inflation will increase, according to the institutes. Both this year and the next, consumer prices could rise by around 2,8 percent. Already in March, inflation in Germany reached 2,7 percent - the highest level since the beginning of 2024. Recently, the Bundesbank also warned that the inflation rate "could soon approach the three percent level significantly."

Nine out of ten German companies expect a deterioration

This development of events is also confirmed by a survey of the Munich Ifo Institute. Nine out of ten industrial companies in Germany expect a war with Iran to have a negative impact on their business - primarily due to higher energy prices.

More than a third of the surveyed companies believe that they will be affected by restrictions in sea routes and difficulties in the delivery of semi-finished products and raw materials. Disruption in air cargo traffic is expected by 16 percent of respondents. About a quarter of the companies also count on a drop in demand in important export markets.

In addition, many firms expect financial risks, for example due to uncertain transport and logistics costs, rising insurance premiums or increased collection risk.

"The results clearly show that the economic consequences of the war with Iran are already visible and could be further intensified through various channels," said Klaus Wohlrabe, head of Ifo polls. "The longer the uncertainty lasts, the greater the economic problems for companies will be."

Source: DW

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