The global economy faces a period of subdued growth, with the ongoing conflict in the Middle East adding significant downward pressure on international trade. The World Trade Organization (WTO) recently released its latest forecasts, predicting a substantial slowdown in merchandise trade this year, even if the current hostilities cease. This comes at a time when global economic recovery remains fragile, and geopolitical tensions are escalating, creating a complex and uncertain outlook for businesses and consumers worldwide.
The WTO’s projections highlight a delicate balance between normalizing trade patterns and the disruptive forces of conflict and energy price volatility. Although trade experienced a boost in 2025, driven by demand for artificial intelligence (AI) related products and anticipatory imports ahead of potential tariff increases, the organization anticipates a return to more moderate growth rates in 2026. However, the situation in the Middle East casts a long shadow, threatening to derail even these modest expectations. The potential for wider regional instability and sustained higher energy prices pose significant risks to the global trading system and, crucially, to global food security.
Dr. Ngozi Okonjo-Iweala, Director-General of the WTO, warned that the conflict’s impact extends beyond trade flows, potentially exacerbating inflationary pressures and increasing costs for both businesses and consumers. The disruption to vital shipping lanes, particularly the Strait of Hormuz, is a major concern, with traffic having decreased dramatically. This critical waterway is responsible for approximately one-fifth of the world’s oil supply, and any prolonged disruption could have severe consequences for energy markets and the broader economy. The WTO’s assessment underscores the interconnectedness of the global economy and the vulnerability of supply chains to geopolitical shocks.
WTO Forecasts: A Two-Scenario Outlook
The WTO’s forecasts are presented under two main scenarios, reflecting the uncertainty surrounding the duration and intensity of the conflict in the Middle East. The baseline scenario assumes no sustained surge in energy prices. Under this scenario, the volume of world merchandise trade is expected to grow by 1.9% in 2026, a significant deceleration from the 4.6% growth recorded in 2025. This slowdown is coupled with a slight dip in global Gross Domestic Product (GDP) growth, falling from 2.9% in 2025 to 2.8% in both 2026 and 2027. The organization anticipates a “normalization” of merchandise trade in 2026, following the stronger-than-expected growth of 2025, which was partly fueled by the burgeoning trade in AI-related products. La Tribune reports on these forecasts.
However, the WTO also acknowledges the significant downside risks posed by escalating tensions in the Middle East. The second scenario considers the possibility of sustained high energy prices throughout 2026, driven by continued disruption to oil and gas supplies. In this case, global GDP growth could be reduced by 0.3 percentage points, and merchandise trade growth would leisurely to just 1.4%. This scenario would disproportionately impact regions that are net importers of fuel, such as Asia and Europe, leading to lower import volumes and slower economic growth. According to Robert Staiger, the WTO’s modern Chief Economist, this scenario is based on an average crude oil price of around $90 per barrel and an average natural gas price of approximately $16 per million BTU.
Impact on Global Trade and Supply Chains
The conflict in the Middle East is already having a tangible impact on global trade flows. The WTO notes a significant reduction in maritime traffic through the Strait of Hormuz, with the number of merchant ships transiting the waterway falling from 138 per day to almost zero. This disruption is not only affecting oil and gas shipments but also impacting the transport of other goods, leading to delays and increased shipping costs. The potential for further escalation and the targeting of production sites in the region add to the uncertainty, creating a challenging environment for businesses involved in international trade.
The disruption to supply chains is particularly concerning, as it could exacerbate existing inflationary pressures and lead to shortages of essential goods. The WTO warns that a prolonged conflict could threaten global food security, particularly for countries that rely on imports of fertilizers and other agricultural inputs. A blockade of the Strait of Hormuz could severely restrict the supply of urea, a key ingredient in fertilizers, impacting major producers like India, Thailand, and Brazil. La Presse highlights the threat to global food security.
Services Trade and the Role of AI
While merchandise trade is facing headwinds, the WTO forecasts a more positive outlook for trade in services. The volume of world services trade is expected to grow by 4.8% in 2026 and 5.1% in 2027, building on the 5.3% growth recorded in 2025. This growth is being driven by the increasing digitalization of the global economy and the expansion of high-technology services. The WTO notes that the resilience of world trade is supported by the exchange of high-tech products and digital services, the adaptation of supply chains, and the absence of widespread trade retaliation.
The rise of artificial intelligence (AI) continues to be a key driver of trade growth, particularly in the services sector. The demand for AI-related products and services is expected to remain strong in the coming years, boosting trade flows and driving innovation. However, the WTO also cautions that the benefits of AI-driven trade growth may not be evenly distributed, and that policymakers need to address potential challenges related to skills gaps and job displacement.
Key Takeaways
- Slowdown in Merchandise Trade: The WTO projects a significant deceleration in global merchandise trade growth in 2026, falling to 1.9% from 4.6% in 2025.
- Middle East Conflict as a Major Risk: The ongoing conflict in the Middle East poses a substantial downside risk to the global trade outlook, potentially reducing growth to as low as 1.4% if energy prices remain elevated.
- Services Trade Remains Resilient: Trade in services is expected to continue growing at a healthy pace, driven by digitalization and the expansion of high-technology services.
- AI as a Growth Driver: The increasing demand for AI-related products and services is a key factor supporting trade growth, particularly in the services sector.
- Food Security Concerns: The conflict in the Middle East threatens global food security, potentially disrupting the supply of fertilizers and other agricultural inputs.
Despite the challenges, the WTO remains optimistic about the long-term prospects for global trade. The organization emphasizes the importance of maintaining open and predictable trade policies, strengthening the resilience of supply chains, and fostering international cooperation to mitigate the risks posed by geopolitical tensions. Okonjo-Iweala stressed that WTO members can contribute to “attenuating the impact” of the war and alleviating the economic burden on populations worldwide by implementing predictable trade policies and reinforcing supply chain resilience.
The next key development to watch will be the WTO’s next comprehensive trade forecast, scheduled for release in October 2026. This report will provide an updated assessment of the global trade outlook, taking into account the latest developments in the Middle East and other key economic regions. The situation remains fluid, and ongoing monitoring of geopolitical events and economic indicators will be crucial for businesses and policymakers alike.
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