How the Iran war could impact growth and trade—and where the silver linings are

Amid daily price swings in crude oil, based on what the US or Iran says on a given day, global growth prospects for 2026 appear grim. Even if the war ends within days, rebuilding energy infrastructure in West Asia, battered by bombings and drone attacks, will take months if not years.

Economies will find alternatives, but those won't be cheap.Meanwhile, elevated fuel prices will affect demand, and therefore demand for foreign goods. Beyond essentials, demand for discretionary items—spending that households can cut back on in difficult times—could take a hit, directly affecting trade across the globe.Ironically, at the start of the year, a range of observers and analysts, including the International Energy Agency (IEA), had predicted a global ‘glut’ of crude oil in 2026.

Expectations were that the supply of crude would far exceed demand, and prices would remain soft through the year. That’s all out of the window.According to credit rating agency ICRA, with a baseline forecast of crude at $85 per barrel (for the specific variants of crude that India is reliant on), projected India GDP growth is expected to drop from 7.5% in 2025-26 to 6.5% in 2026-27.“However, the ongoing conflict in West Asia has led to a surge in energy prices and impacted availability, which would hurt corporate profitability and could lead to higher inflation, impacting consumer demand,” said the agency.Accordingly, the higher crude prices are, the more muted growth is likely to be.

At an average price of $105 per barrel, ICRA projects growth at 5.8%. At $125, around 5%.It’s not just India.

The world economy and global trade will suffer. An analysis released by the World Trade Organization (WTO) after the war started, said 2025 saw higher growth in