Will the Iran Crisis Cause a Global Recession?

“The International Monetary Fund published its 180-page World Economic Outlook three weeks ago. A hard copy is available for $50, but don't bother -- its "reference scenario" is already stale.

 

The differences between that and its now more likely "adverse" or "severe" scenarios aren't small, and investors should take note as the Strait of Hormuz remains blocked.

 

Almost 10 weeks into the war, one possibility now popping up on economists' radar screens is a global recession. To be clear, "global" means affecting several countries all at once, not every country. The 2008-2009 "great recession," for example, technically didn't cause the economies of China, India or Indonesia, three of the world's most populous nations, to contract.

 

Iran probably won't put a minus sign in front of U.S. growth figures this year, but that doesn't mean American investors are free and clear.

 

Big companies in the S&P 500 are mostly multinationals. Even AI, today's dominant investment theme, isn't immune if corporations and households worldwide tighten their belts.

 

Given the uncertainty, Nwal Anwar and Robert Embree of Rosenberg Research laid out their own scenarios this week. Their three global growth outlooks are helpful because they're based on how long Hormuz stays blocked.

 

Their first, and mildest, sees the waterway reopening within three weeks. That would still make a dent, taking global growth to 2.9% this year from an expected 3.4% before the war.

 

Their second scenario is a reopening between mid-May and July. That would take global growth down to 2.6%.

 

The third involves a closure until July or even later, and this is the one that flirts with a global recession. Growth would be 2.5% or possibly even 2%.

 

That sounds alarmist viewed from the energy-independent U.S., where gasoline prices are the most visible clue something is wrong. But many more commodities are affected than during the first Gulf War, the Iranian Revolution or the Arab Oil Embargo, all three of which depressed the global economy.

 

Materials necessary for agriculture, auto manufacturing and even booming semiconductors are in short supply. Some countries, and even parts of the U.S., will face shortages of things like jet fuel even under an optimistic scenario.

 

Stocks have gyrated on any ray of hope coming out of the Middle East, and that makes sense. The longer the Hormuz blockage lasts, the greater the hit to growth.

 

Economic forecasts have a short shelf life these days.” [1]

 

1. Will the Iran Crisis Cause a Global Recession? Jakab, Spencer.  Wall Street Journal, Eastern edition; New York, N.Y.. 07 May 2026: B10.