Economic shock waves from the U.S.-Israeli conflict with Iran threaten the global economy. World Bank President Ajay Banga gave this warning on Friday. He said even a temporary ceasefire would not stop the damage entirely.
The warning follows weeks of military strikes. The U.S.-Israeli aggression began on February 28. It assassinated senior Iranian officials. These included Ayatollah Seyyed Ali Khamenei. Iran launched daily missile and drone operations in response. Those operations targeted Israeli-occupied territories. They also hit US military bases across the region.
Banga then outlined two possible scenarios. Global growth could fall by 0.3 to 0.4 percentage points in the best case. That scenario assumes a ceasefire holds. However, the damage grows much worse if the war continues. Growth could drop by a full 1 percentage point then.
Inflation will also rise sharply, Banga estimates. He projects a 200 to 300 basis point increase. A prolonged war could push that impact to 0.9 percentage points. The outlook for emerging markets looks grim. The World Bank now projects 3.65% growth for 2026. That is down from 4% in October. As a result, growth could fall to 2.6% in a worst-case scenario.
Inflation in developing countries will surge as well. The new forecast hits 4.9% in 2026. That is up from a prior estimate of 3%. Moreover, inflation could reach 6.7% if the war drags on. The conflict has already pushed oil prices up by 50%. It also disrupted supplies of gas, fertilizer, helium, and air travel.
Banga raised a critical question about the peace talks. For instance, will the current negotiations lead to lasting peace? Talks occurred this weekend in Islamabad. Pakistan brokered a temporary ceasefire on April 8. Iran accepted the deal after the US agreed to a 10-point proposal. Iranian Parliament Speaker Mohammad Baqer Qalibaf led his country’s team. Meanwhile, U.S. Vice President JD Vance led the American side.
No deal emerged after 21 hours of talks. Iran’s Foreign Ministry spokesman Esmaeil Baqaei said both sides agreed on some issues. But they disagreed on two or three important matters. Consequently, renewed conflict would hit energy infrastructure hard, Banga warned. That would create even larger economic shock waves.
The World Bank is already taking action. For example, it is talking with several developing countries. Small island states with no energy resources need help. The bank can tap existing crisis response windows. These allow countries to access previously approved funds. Importantly, no additional board approvals are necessary.
Banga offered a strong caution to those countries. They should avoid unaffordable energy subsidies. Otherwise, such moves would worsen fiscal problems later. “I worry about making sure they can come through this crisis,” he said. Many developing nations already carry high debt. Interest rates remain high as well. Therefore, that limits their ability to borrow for energy price shocks.
A clear lesson emerges from this crisis, Banga believes. First, nations must diversify energy supplies. Second, they need to boost self-sufficiency. The World Bank ended a long ban on nuclear funding last June. Thus, the bank now supports nuclear energy projects. Many such products are in the pipeline. Several countries want to extend existing nuclear reactors. Others want to build new ones.
“If you do not get nuclear and hydro and geothermal going at scale, along with wind and solar, they will end up doing more with traditional fuels,” Banga said. Nobody really wants that outcome, he added. The coming weeks remain critical. Diplomats will try again to bridge their differences. In summary, the global economy braces for more economic shock waves.