Oxford Economics calls US-Iran deal the key risk for global growth

Oxford Economics says the US-Iran peace agreement is "the key domino" that will determine whether the global economy accelerates or faces a second oil shock.rte
The firm forecasts annualized global growth nearly doubling in the second half of 2026 but warns that AI supply chain disruptions and new tariffs pose additional risks.rte+1
Brent crude has fallen below $80 a barrel, suggesting the inflation shock may prove milder than feared, according to The Economist.economist

The fragile peace between the United States and Iran has become the single most important variable for the global economy in the months ahead, according to a new report from Oxford Economics that frames the truce as a "key domino" capable of either unlocking growth or triggering a renewed energy crisis.

A Conditional Recovery

The consultancy's mid-year outlook, titled "The dominos to watch in the second half of the year," forecasts annualized global GDP growth of 3.1% in the second half of 2026, a sharp acceleration from an estimated 1.6% in the first half. But that pickup hinges on whether the memorandum of understanding signed by the US and Iran in June holds together through a 60-day negotiating window that remains open.cnn+3

Ryan Sweet, Oxford Economics' chief global economist, said the durability of the agreement "will determine whether the global economy gets an energy-driven disinflation tailwind or absorbs a second oil shock," calling it "the key domino that will determine whether other risks are amplified or dampened".rte

Broader Consensus on Middle East Risk

Oxford Economics is not alone in flagging the conflict's aftermath as a central concern. The Bank of Canada has held its policy rate at 2.25% for five consecutive meetings this year, citing elevated oil prices and the ongoing Middle East situation. In its June 10 decision, the Bank's Governing Council said it would "not let higher energy prices become persistent inflation" while noting that "the conflict in the Middle East is ongoing and oil prices remain elevated".stories.td+1

Morgan Stanley has similarly acknowledged that the energy supply shock from the Iran conflict "still generates uncertainties," while forecasting global real GDP growth of 3.2% for the full year. The Economist Pearson plc noted this week that Brent crude falling below $80 a barrel suggests "the inflation shock may prove milder than feared," though interlocking risks remain.morganstanley+1

Beyond the Truce

The Oxford Economics report also flagged disruption to AI supply chains and trade policy uncertainty as persistent headwinds. The firm expects new Section 301 tariffs from late July and warned that the USMCA review cycle and more than 50 EU-China trade defense investigations mean "trade policy headwinds will persist regardless of the Middle East crisis".rte

The US-Iran MOU, brokered by Pakistan and signed on June 19 in Switzerland, commits both sides to a permanent cessation of hostilities, reopening of the Strait of Hormuz, and a $300 billion reconstruction plan funded by regional partners — but leaves core issues including Iran's enriched uranium stockpile to further talks within the 60-day window. Whether those talks succeed may well determine the trajectory of the global economy for the rest of the year.bbc+2

Sources (26)