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Summary
Even if the war ends in days, the surge in oil prices and the damage caused to energy infrastructure will lower global GDP growth and trade. But there are some bright spots, too.
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.
Gloomy forecast
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%.
All at sea
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 global goods trade, despite the imposition of additional tariffs by US President Donald Trump. This was because the actual tariff impact was muted due to the delay in imposing tariffs and exemptions. Further, the surge in demand for so-called ‘AI-enabling’ goods—such as chips, semiconductors, and data equipment, which accounted for 42% of global trade growth in 2025—offset the impact of tariffs on other sectors.
According to WTO calculations, if crude oil and LNG prices remain high through 2026, it could shave off 0.3 percentage points off the 2026 global GDP growth forecast of 2.8%, and 0.5 percentage points off global trade growth. This would mean that global goods trade (average of imports and exports) would grow around 1.4% in 2026, a sharp drop from 4.6% in 2025.
On the bright side
There is a silver lining for India, though small: trade in services. The WTO projects a drop in the growth of global exports of so-called commercial services, from 5.3% in 2025 to 4.1% in 2026. Yet, based on past trends, India’s share of such services could remain strong, if not increase. In global exports, over the last couple of decades, India’s share has stagnated in goods, but increased in services. Since 2008, while global exports of services expanded about two times, India’s services exports increased 3.5 times, having accelerated post-covid.
But the major wildcard is around AI adoption. If it grows dramatically in businesses around the globe, as expected, Indian IT firms are headed for a major phase of uncertainty. While retooling business and marketing strategies towards providing AI-enabled services could offset business losses in more ‘traditional’ IT services, it’s anyone’s guess what the impact will be on employment rates and new hiring rates in the industry.
Going digital
Global exports of ‘digitally delivered’ services grew an estimated 5.7% in 2025. Unlike most other sectors, it's expected to see strong 6.3% growth in 2026 even if high energy prices remain high.
According to the WTO, digitally delivered services are those delivered remotely, through cross-border computer networks. These include financial services, computer services, and professional services. “Among services sectors, transport and travel are the most sensitive to global business cycles, while other commercial services, among them digitally delivered services, are less so,” said the WTO report.
The US is the biggest exporter of such services. In 2025, it recorded exports of $815 billion, with a share of 15.5%. India ranks fourth, with a share of 6.2% and exports of $328 billion. One positive scenario for Indian IT amid the gloom of slowing growth and layoffs is the possibility of an increase in such services going forward. Again, the major uncertainty is how AI uptake will impact the delivery of such services.
Oil gains
According to the WTO, all regions are looking at lower export growth in 2026. The biggest beneficiary of the Iran war has arguably been Russia, which has effectively been ‘de-sanctioned’ by the West and allowed to sell its oil, that too at elevated prices.
Global demand patterns are shifting towards oil-exporting countries and away from countries dependent on oil, according to the report. “Regions where petroleum represents a large fraction of exports (the Middle East, the CIS region, Africa) would see rising import volume growth consistent with increasing export revenues, while net oil-importing regions (Asia, Europe) would see import growth slowing,” it said.
As and when the war ends, the damage to energy and other infrastructure in West Asia could lead to greater demand from those countries for equipment and manpower as they look to rebuild. In such a scenario, remittances from West Asia to countries like India, critical for millions of families in the global south, could improve. However, much depends on how the war plays out.
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English (US) ·