In less than a decade, the global economy has faced at least three back-to-back major disruptions, excluding the sweeping tariffs imposed by U.S. President Donald Trump.
With the latest energy shock, originating from the conflict in the Middle East, the period of sustained pressure appears to be stretching on, reinforcing the view of fragility, particularly to supply chains.
The COVID-19 pandemic, Russia-Ukraine conflict, and now the crisis in the Middle East have left policymakers around the world on edge, even though they have largely begun to accept a new reality of trade and energy shocks, rising protectionism and geopolitical tensions.
However, recurring energy volatility and the fact that the world is still so much dependent on a single narrow waterway for around one-fifth of oil and natural gas supplies, brought to the surface many new questions, ranging from diversification of energy sources, expediting uptake of renewables and reinforcing the importance of cultivating regional rather than global ties.
In this sense, understanding the realities and delivering on a strategy in accordance with the new economic landscape becomes a crucial part for the countries to deliver on growth, curb volatility, and work on advancing technological transformation, which is increasingly becoming a central part of the emerging order.
The situation is, undoubtedly, very diverse when it comes to developed countries, emerging economies or those heavily reliant for energy imports to cover their needs.
The war between U.S., Israel and Iran, for example, has once again exposed the fragility of certain regions, such as Asia, but there are different stories and examples of how nations, such as China, have worked on diversification and stockpiling to boost their preparedness for events and crises such as this one.
Yet, the combined effect of trade fragmentation and energy instability has, at the same time, made inflation more difficult to contain.
Central banks, which spent much of the past years tightening monetary policy and then slowly and cautiously easing, now face a delicate balancing act: curbing price pressures without triggering a broader economic slowdown.
This week, the updated forecast by the International Monetary Fund (IMF) is likely to show global growth slowing down, with the scenario probably citing the impact of soaring oil and gas prices. Inflation forecasts are also expected to be increased, IMF chief Kristalina Georgieva told Reuters recently.
In January, the IMF had forecast global growth of 3.3% in 2026 and 3.2% in 2027.
This, at the time, was perceived as a sign that the global economy is managing to weather the effects of Trump's tariffs better than anticipated.
"Technology investment, fiscal and monetary support, accommodative financial conditions, and private sector adaptability offset trade policy shifts," the fund said at the time.
That "World Economic Outlook" update followed a yearlong period of swings in financial markets due to the quickly changing decisions of Trump on tariffs, trade deals and attempts to convince other nations and large multinationals to move their manufacturing to the U.S.
Since then, with fallout from the war in the Middle East, the concerns have not stayed limited to the fluctuations in stocks, but have gotten this broader sense of crisis unseen in decades if the conflict is to continue for longer.
Blockade of the Strait of Hormuz has triggered an oil and gas crisis that is "more serious than the ones in 1973, 1979 and 2022 together," Fatih Birol, the head of the International Energy Agency (IEA), said in recent remarks.
It also prompted a rare release of emergency reserves in a coordinated effort, while governments kicked off different schemes, including fuel rationing, supporting customers and limiting the use of power to minimize the impact of the shortages in supplies.
This, as in any major global disruption, has led to relaxation in financial terms, with governments responding with a mix of fiscal support measures, including energy subsidies and targeted relief for households and businesses. However, such interventions come at a cost, adding to already elevated public debt levels and limiting room for future policy maneuver.
Moreover, considering the fragile cease-fire, currently in place, and the failed Islamabad talks, it remains to be seen how and if the U.S. administration and Iran sort out their disagreements and how markets move from here on.
With tariffs, it was clear that rates can be removed almost as fast as being imposed, the U.S. Supreme Court has also played a role in this, but energy disruptions come with more leverage and are, in fact, hurting production, factory activity, travel demand and consequently jobs and wages too.
In mid-March, the World Food Programme (WFP) warned that tens of millions more people could face acute hunger if the Iran war continues through to June, suggesting that countries in sub-Saharan Africa and Asia face the highest risk due to reliance on imports.
Similarly, although regressing since the announcement of the cease-fire, European gas prices have gone through the roof and the conflict once again exposed the risks the continent is facing as it moved to cut dependence on Russia.
Already grappling with the aftereffects of energy shock from 2022, Europe, in addition to much of Asia, is seen in need to refine its energy strategy.
Some analysts even point out that nuclear energy could revive following the recent developments in the Middle East, while expectations also revolve around new pipelines and energy corridors – that could potentially bypass the Hormuz Strait.
Following the COVID-19 pandemic, the U.S. economy gained its foothold faster than Europe, although inflation lingered for some time and has now again risen due to energy prices. With the downturn in the property sector and lower consumer demand, China is also facing structural challenges, while the competition between the duo in the domain of technology and artificial intelligence continues.
Many emerging markets also remain vulnerable to external shocks, including fluctuations in energy prices and shifts in global capital flows.
Looking ahead, trade fragmentation and energy-related disruptions are unlikely to fade quickly, economists argue. At best, recovery from the Middle East disruption, even with cessation of hostilities, would take months, if not longer.
For now, the global economy is holding up under pressure, or better said, it is getting accustomed to risks.
But whether this resilience can be sustained will depend largely on how effectively policymakers and businesses navigate an increasingly complex and divided global landscape.
