The global economy is entering a dangerous overlap of crises: an energy shock linked to the widening war around Iran, public debt at historically high levels and an artificial-intelligence investment boom that is supporting demand while adding new inflationary pressure. The collision will dominate this week’s IMF and World Bank meetings in Bangkok, where officials face a narrower margin for error than headline growth figures suggest.
The immediate risk comes from energy. Iran’s partial blocking of the Strait of Hormuz has disrupted a route through which roughly 20% of the world’s oil normally passes, while Houthi attacks have threatened shipping near the Bab el-Mandeb and forced a wider aviation warning over Saudi Arabia. Together, those developments have turned a regional conflict into a test of the global economy’s logistical resilience. Reuters reported that officials describe the conflict as the biggest-ever energy supply shock, while separate reporting documented the escalation around Riyadh and the Red Sea.
The first transmission channel is straightforward: more expensive fuel raises transport, electricity and food costs. The second is more difficult for central banks. If inflation comes from a shortage of energy rather than excessive consumer demand, raising interest rates cannot produce more oil or reopen shipping lanes. It can, however, weaken investment and employment. Policymakers therefore face a choice between tolerating a longer period of above-target inflation and risking a deeper slowdown.
Why growth has not yet collapsed
Despite the shock, the IMF has kept its 2026 global growth projection near 3%, according to Reuters reporting. That resilience reflects several offsets. The United States and other advanced economies have benefited from strong technology investment, while China’s exports of electric vehicles, solar equipment, batteries and other AI-related goods have remained robust. Reuters reported that Chinese exports had recorded double-digit growth for four consecutive months, illustrating how industrial demand can cushion weakness elsewhere.
Artificial intelligence is the most important positive force in the current outlook—and potentially another source of instability. Spending on data centres, chips and power infrastructure is boosting output and productivity expectations. IMF Managing Director Kristalina Georgieva has described the AI build-out as a positive demand shock, but warned that it is also contributing to inflation. The danger is not that AI investment is unproductive by definition; it is that capital and energy are being committed faster than the wider economy can absorb them.
That creates two competing interpretations. Optimists argue that AI could raise productivity enough to offset higher energy costs and help governments grow out of their debt burdens. Skeptics see a concentrated investment cycle vulnerable to disappointment, especially if expected commercial returns fail to match valuations. If that boom reverses while energy remains expensive, the global economy could lose both its principal growth engine and its inflationary pressure valve.
Debt limits the response
Governments also have less fiscal room than during earlier crises. The IMF says public debt is at its highest level since the Second World War and could exceed 100% of global GDP before 2030. Higher interest rates increase debt-service costs just as governments are being asked to subsidize energy, protect households and expand defense spending.
The burden is especially severe for poorer countries. Reuters reported that low-income and emerging economies face about $400 billion in external debt payments during 2026, while interest payments already absorb more than 10% of government revenue on average. Those countries cannot easily borrow their way through an energy shock, and currency depreciation can make dollar-denominated obligations still more expensive.
Rich economies have more options but are not insulated. Broad energy subsidies may limit the political impact of higher prices, yet they can preserve demand and worsen budget deficits. Targeted transfers are more efficient, but politically harder to administer. A prolonged shock could also revive pressure for protectionist measures, as governments try to secure fuel, food and strategic technologies at the expense of global trade.
What comes next
The near-term outlook depends less on a single forecast than on whether several risks reinforce one another. A de-escalation that reopens shipping routes would quickly ease the worst supply fears. The United States has also imposed new sanctions on Iran’s oil networks and vessels, seeking to restrict funding for the conflict, but sanctions can reduce supply as well as pressure governments toward negotiation. Reuters reported that the latest measures target 17 vessels and associated networks.
If the war persists, central banks will probably emphasize inflation expectations and financial stability rather than promise rapid rate cuts. Governments will face pressure to protect vulnerable consumers without subsidizing all energy use. International lenders, meanwhile, will be pushed toward debt relief and emergency financing, even as their own resources are constrained.
The central question is whether the present shocks remain separate. A contained energy disruption may be manageable. An energy crisis combined with a bond-market selloff, weaker Chinese demand or an abrupt reversal in AI investment would be far more serious. The Bangkok meetings will therefore be less about finding one global solution than about coordinating enough national responses to prevent a regional war from becoming a synchronized economic downturn.