‘Worst yet to come’: World Bank warns lasting economic damage from Iran war

The economic aftershocks of the Iran war are beginning to take shape, and the warning from Ajay Banga suggests the damage could linger long after the guns fall silent. 

In an assessment of the conflict’s global impact, the World Bank chief said even an immediate and lasting ceasefire would not prevent a “cascading” slowdown across economies. If the truce holds, global growth could still fall by 0.3 to 0.4 percentage points. If it collapses, the hit could deepen to as much as 1 percentage point — an outcome that would ripple across trade, energy markets, and financial systems. 

Inflation pressures are expected to intensify in parallel. Banga indicated global inflation could rise by 200 to 300 basis points in a ceasefire scenario, with further escalation — up to 0.9 percentage points — if the conflict drags on. For developing economies, the situation looks more severe, with inflation potentially reaching 6.7% in a worst-case scenario. 

Developing world in the firing line 

The World Bank has already begun discussions with vulnerable nations, including energy-import-dependent island economies, to activate emergency funding through crisis response windows. However, Banga issued a clear warning: governments must avoid locking themselves into unsustainable energy subsidies that could trigger fiscal instability later. 

Instead, the crisis is reinforcing a structural lesson — countries that fail to diversify energy sources risk prolonged economic vulnerability. Banga pointed to Nigeria as a case study, where a $20 billion refinery push has strengthened domestic energy security and even enabled exports like jet fuel to neighboring countries. 

Banga underscored that the long-term solution lies in scaling alternative energy — nuclear, hydro, geothermal, alongside wind and solar. Without this shift, countries may fall back on traditional fossil fuels, prolonging both economic and environmental risks.