How the Global Economy Has Held Up Six Months Into the Iran War

Six months after the United States and Israel began military operations against Iran on February 28, the global economy has proved more adaptable than the worst forecasts suggested. It has not, however, returned to normal. The current picture is one of slower growth, elevated energy costs and a recovery increasingly concentrated in U.S. consumer demand and the artificial-intelligence investment cycle. 517

The headline result: no global recession, but weaker growth

The International Monetary Fund’s July outlook projects global growth of 3.0% in 2026, down from the 3.5% average recorded in 2024 and 2025. The IMF expects growth to reach 3.4% in 2027, but the near-term downgrade shows that the energy shock has not been absorbed without cost.

The IMF also expects global headline inflation to rise from 4.1% in 2025 to 4.7% in 2026, indicating that the conflict has interrupted the broader disinflation trend.

That combination—continued expansion alongside weaker growth and higher inflation—is why the economy looks resilient rather than strong.

What the U.S. indicators show

GDP slowed, while domestic demand stayed firm

U.S. real GDP increased at a 1.5% annualized rate in the second quarter, below economists’ expectations cited by Reuters. Imports weighed on the headline number, masking stronger domestic activity. 22

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose at a 3.2% annualized rate in the quarter after growing just 0.5% in the first quarter. 22

The data therefore point to a crucial distinction: the United States has not stopped growing, but its momentum is being carried more by domestic demand than by broad-based acceleration.

AI investment is providing an important offset

Business investment in equipment rose at a 15.2% annualized rate in the second quarter, as companies continued spending on computing capacity, chips and data centers linked to the AI buildout. 22

The IMF says accelerated demand in the global technology cycle partly offset the effects of the war-related energy shock. AI investment is also supporting U.S. corporate earnings and consumer spending, while other countries expand data-center construction and AI hardware capacity. 17

That support is meaningful—but it also creates concentration risk. If expected returns from AI infrastructure disappoint, the same sector currently supporting investment, earnings and markets could become a source of weakness. The IMF has identified a potential correction in AI-related market expectations as a downside risk.

Markets recovered faster than the real economy

Financial markets initially reacted sharply to the attacks: oil prices surged, interest rates rose and stocks fell. By late August, however, the major U.S. indexes had recovered strongly from their late-March lows. The Dow was up nearly 19%, the S&P 500 nearly 22%, and the Nasdaq 27%, with technology stocks among the leading beneficiaries. 7

The rebound shows that investors have largely looked beyond the first shock and focused on corporate earnings, AI demand and the possibility that the energy disruption will remain contained. It does not mean households and businesses have experienced the same recovery. Higher fuel and transport costs continue to affect consumers, while refined-fuel shortages have been especially disruptive. 14

Oil is lower than its peak, but still structurally expensive

Brent crude briefly rose above $120 a barrel in April. By late August, it was roughly one-third below its April peak but still nearly 20% above its pre-war level. 28

That is the market’s central compromise: alternative routes, rerouted shipments and inventories have prevented the most extreme price scenario, but the supply system remains damaged. Before the conflict, roughly 18 million barrels per day of crude and refined products moved through the Strait of Hormuz. Reuters reported that flows fell to 4.8 million barrels per day in July and averaged around 2 million barrels per day in August.

The disruption also extends beyond crude. European diesel prices had risen more than 70% since the outbreak of the war, while U.S. gasoline prices were up 60% in the Reuters comparison. 4

The International Energy Agency expects global oil supply to fall by 4.3 million barrels per day, or about 4%, in 2026, as the Hormuz shutdown and attacks on regional infrastructure continue to constrain exports.

Inflation remains the main policy problem

The energy shock has made it harder for central banks to respond to slower growth. Cutting interest rates could support demand, but doing so while fuel costs and inflation expectations remain elevated could prolong price pressures. Holding policy tight could help contain inflation, but risks worsening a slowdown.

U.S. personal-consumption-expenditure inflation, the Federal Reserve’s preferred price measure, came in slightly hotter than expected in late August. Annual headline PCE inflation was 3.7%, while core PCE inflation was 3.3%, both above the Fed’s 2% target. 18

This leaves policymakers with a stagflation-style trade-off: weaker growth argues for relief, while above-target inflation argues for caution.

Why the resilience may not last

The Hormuz workaround has limits

Strategic reserves, pipelines and alternative export terminals can soften a temporary interruption, but they cannot fully replace a corridor that normally carries about one-fifth of global oil and LNG supplies. Governments are finding ways to reroute some shipments, yet the longer the restrictions last, the more inventories are depleted and the more expensive those alternatives become. 5

The IEA has already reported falling regional exports and lower supply estimates for the rest of the year. Reuters also reported that global oil inventories had been drawn down heavily since the conflict began.

Europe faces a sharper energy squeeze

Energy-importing economies are especially exposed because higher oil, gas and refined-fuel prices raise import costs while reducing household and industrial purchasing power. In response, governments across Europe and Asia are accelerating renewable-energy investment to reduce dependence on fossil-fuel imports.

That transition may improve long-term energy security, but it does not remove the short-term cost of a prolonged disruption.

AI could shift from cushion to vulnerability

AI capital expenditure is currently helping offset weaker activity, but the investment cycle depends on companies eventually generating returns from the chips, data centers and computing infrastructure being built. The provided outlooks identify a repricing of AI expectations as a risk; they do not establish that such a correction will occur.

The practical implication is that the global economy is relying on a powerful but concentrated source of demand at the same time that energy supply remains unusually constrained.

The bottom line

The global economy has avoided recession because several buffers worked at once: U.S. consumer spending remained strong, AI-related business investment accelerated, markets recovered, and oil supplies were partly rerouted. But these buffers have reduced the immediate shock rather than resolved its cause.

The key indicators now describe a narrow path: U.S. GDP is still growing, consumption is supporting activity, AI is driving investment and stocks have rebounded—but global growth is slower, inflation is higher and the Hormuz supply disruption is consuming reserves. If the corridor remains restricted or AI returns disappoint, the resilience seen over the first six months could become much harder to sustain.