OECD Believes Inflation from Iran Conflict is Limited to Energy, Predicts Stronger Growth for US Economy

March 28, 2026

OECD Adjusts U.S. Economic Growth Forecast Amid Global Challenges

The Organization for Economic Co-operation and Development (OECD) announced on Wednesday an upward revision for the U.S. economic growth forecast. Interestingly, they predict that underlying inflation in the U.S. will pretty much hold steady, even with the surge in energy prices driven by the ongoing conflict in Iran, while downgrading predictions for several other major economies.

According to the OECD, the U.S. headline inflation is projected to rise from 2.6% in 2025 to 4.2% this year, largely due to energy price shocks linked to the possible closure of the Strait of Hormuz. That said, core inflation—excluding food and energy—should remain at 3.0% in 2026, unchanged from December’s outlook, and only inch up slightly to 2.4% in 2027. The OECD seems to be banking on the idea that this significant disruption in energy supply, the most substantial since the 1970s, will remain largely contained within the commodity sector and not bleed into the broader economy.

In terms of growth, the United States is in a more favorable position. The OECD has raised its 2026 growth forecast for the U.S. by 0.3 percentage points, now standing at 2.0%. This adjustment stems from strong activity in sectors related to artificial intelligence, lower effective tariffs following a Supreme Court decision, and more robust economic performance anticipated in the latter half of 2025. However, growth is expected to decelerate to 1.7% in 2027, primarily due to slowing consumer spending.

On the other hand, many other developed nations are facing tougher economic conditions. The growth outlook for the Eurozone has been slashed by 0.4 percentage points down to just 0.8%, as high energy prices weigh heavily on this import-reliant region. The UK has been notably affected, seeing a 0.5-point drop to 0.7%. South Korea and Canada have also seen reductions, of 0.4 and 0.1 points respectively. Emerging economies like Brazil and Indonesia were likewise revised downward by 0.2 points each.

Meanwhile, China’s growth rate remains steady at 4.4% this year, which is the slowest since 2022 and falls below the past decade’s average. Conversely, growth rates in Russia and Mexico were adjusted upward slightly to 0.6% and 1.3%, respectively.

This situation underscores the relative energy advantage held by the United States. Even though the near-closure of the Strait of Hormuz has disrupted around 20% of global oil production and a considerable share of liquefied natural gas trade, the U.S. is a net energy producer and could potentially boost domestic production despite ongoing geopolitical tensions, according to the OECD.

The OECD anticipates that the Federal Reserve will keep interest rates steady for the rest of 2026 and throughout 2027. This is based on projections that headline inflation will rise soon and core inflation will continue to hover above the Fed’s 2% target. If the U.S. economy outpaces the Fed’s long-term growth estimates, the potential for rate cuts could be limited. This positions the OECD as relatively hawkish compared to market expectations, which were leaning towards rate reductions prior to the conflict.

However, the OECD’s forecast relies on several assumptions that it acknowledges may be fragile. For instance, the effective U.S. tariff rate is anticipated to stay at 9.9% post-replacement of IEEPA tariffs with a flat 10% levy, pending Congressional approval by late July. Moreover, whether headline inflation will fall to 1.6% in 2027 will largely hinge on energy prices as the futures outlook shifts from mid-2026.

The organization cautioned that if disruptions to Middle Eastern energy exports persist longer than expected, there could be far worse outcomes. In a more pessimistic scenario, average oil prices could hit $135 per barrel in the second quarter, potentially leading to a global production decline of about 0.5% and an added 0.9 percentage point rise in consumer prices. The OECD also expressed concerns that surging AI-related prices in financial markets, along with increasing losses in private capital markets, might spark broader financial instability.