The global outlook remains highly uncertain amid an increasingly prolonged confrontation and fragile ceasefire between the US and Iran. Drawn-out negotiations, ongoing shipping blockades and the risk of military escalation threaten the truce's durability, says Moody's Ratings (Moody's) in its "Global Macro Outlook (May 2026 Update)" report.
Against this unstable backdrop, the global economy faces another potential energy and food-price shock, particularly if transit flows to and from the Gulf remain constrained, says Moody’s.
Given the wide range of plausible outcomes, a scenario-based framework provides the most effective lens through which to assess the macroeconomic and credit implications.
Magnitude of growth and inflation effects hinges on the duration of the Strait of Hormuz's closure
Moody’s says that its central scenario assumes the ceasefire holds and transit flows gradually improve as oil importers negotiate bilateral passage agreements. Even so, a return to pre-conflict traffic volumes is unlikely in 2026, and Moody’s do not expect a full restoration of oil supply until after the first quarter of 2027.
Under this scenario, the key takeaways are:
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Brent crude is expected to trade mostly in the $90–$110 per-barrel range, with occasional excursions outside that band.
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Persistently high energy costs would keep inflation elevated, compress profits, weaken investment and strain public finances, while major central banks remain on hold but ready to tighten financial conditions if necessary.
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G-20 growth would downshift to 2.4% in 2026, well below Moody’s pre-conflict expectations of 2.8%, while growth in 2027 remains unchanged at 2.6%.
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Even energy-self-sufficient economies such as the US are not immune, as higher fuel and food prices erode household purchasing power and pressure investment.
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A breakdown in the ceasefire or prolonged closure of the Strait could trigger a stagflationary shock, materially worsening global credit and macroeconomic outcomes.
Regional vulnerabilities
The report says that economies face a mix of shared and specific challenges arising from the conflict. Strategic reserves offer only short-term protection, as physical global energy shortages will become increasingly acute within a few months. The impact on different countries or regions includes:
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Asia-Pacific is the most exposed region
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China (A1 stable) is partly insulated by its reliance on coal and renewables
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India (Baa3 stable) remains vulnerable
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Japan (A1 stable) and Korea (Aa2 stable) also face elevated risks given their heavy dependence on oil and gas imports
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Europe confronts renewed stagflation risk, threatening its industrial recovery and reinforcing a tighter monetary policy
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The US, despite energy self-sufficiency, faces higher inflation alongside higher input and fiscal costs
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Latin America is comparatively insulated but still faces higher inflation, tighter monetary policy and uneven impacts across its large economies.