Global Implications of the Middle East War: Some Scenarios

The McKibbin, Noland and Shuetrim (2026) paper on the global implications of the Middle East war.

Analysis has been performed using model 12N build 195, adapted to include bilateral “iceberg” costs to international trade.

We only explore the impact of price, quantities, and income effects, meaning we do not include changing shocks to risk premia as a result of the increased uncertainty.

The shocks are:

  • A reduction in supply from the Middle East sufficient to raise crude oil export prices from the Middle East by 70% (i.e. to $120 per barrel) and natural gas by 100% in 2026;
  • Additional increases in landed prices of crude, refined petroleum and natural gas in countries importing energy from the Middle East; and
  • A reduction in agricultural productivity, due to an increase in cost and a reduction in the availability of fertilizers.

In the persistent scenario, the shocks in 2026 match those in the temporary scenario, with the size of the shocks halving in 2027 and then halving again in 2028.

Analysis as at 20 April, 2026