The ongoing conflict in West Asia has delivered a classic stagflationary shock to the global economy—simultaneously suppressing economic growth while driving consumer prices higher.
According to Claudio Irigoyen, Managing Director and Head of Global Economics at Bank of America (BofA), the global financial landscape is highly vulnerable. BofA has downgraded its full-year global economic growth forecast to 3.1% (down from a pre-conflict estimate of 3.5%), warning that the damage to supply chains and inflation metrics is already done, even if hostilities conclude rapidly.
The Core Risk: A Dangerous Market Complacency
While equity markets—particularly in the United States—have continued to scale near-record highs on the back of the Artificial Intelligence infrastructure boom, BofA cautions that investors are pricing in an overly optimistic, swift end to the geopolitical deadlock.
“If the war extends throughout the summer, the pressure on oil prices will be much higher and non-linear — it does not look like that is a story priced in at this point.”
— Claudio Irigoyen, Bank of America
The “New Normal” for Global Energy
Even under a best-case scenario assuming a diplomatic breakthrough to secure the Strait of Hormuz, BofA asserts that crude oil prices are highly unlikely to return to their pre-conflict baseline of the high $60s to low $70s.
Instead, a severe global inventory restocking cycle—especially among major Asian economic hubs like China and Japan—is expected to anchor a new normal price floor of $90 to $95 per barrel for an extended duration.
Impact Map: Winners, Losers, and Central Bank Dilemmas
The crisis is driving a sharp economic divergence across different regions and asset classes, creating a complex policy puzzle for global central banks.
| Category / Region | Economic Outlook & Impact | Central Bank Stance (BofA Projection) |
| Energy Importers (Europe) | Bearing the brunt of the shock due to heavy reliance on external fuel supply chains. | ECB: Faces a highly restrictive choice and may be forced to hike interest rates to curb headline inflation. |
| United States | Insulated from the worst effects due to its structural position as a net energy exporter. | Federal Reserve: Expected to hold interest rates steady for now, looking through immediate energy moves while monitoring core inflation sticky near 3%. |
| India | Facing twin pressures of currency depreciation and a widening current account deficit, though capital imports from China are feeding productive capacity rather than pure consumption. | RBI: Expected to remain firmly on hold in the near term. Rate hikes remain possible toward late 2026 or early 2027 if energy prices remain elevated. |
| Commodity Exporters (Latin America) | Net exporters like Brazil, Colombia, and Mexico are seeing positive trade balances driven by high oil, copper, and gold prices. | Divergent local policies depending on domestic currency defense. |
Supply Chain Realities
While alternative energy producers, particularly the United States, are actively ramping up extraction and output, the structural delays required to normalize maritime traffic through the Persian Gulf mean that input cost inflation will ripple through global manufacturing lines well into the latter half of the year. Investors are advised to look past temporary supply-side fluctuations and keep a strict eye on persistent second-round effects on core inflation.
