Geopolitical Tensions Outweigh Trade Policy Risks for Global Markets

Geopolitical tensions in the Middle East now outweigh trade policy uncertainty as the primary risk to the global economy, according to the United Nations Conference on Trade and Development (UNCTAD). Disruptions in energy markets and trade corridors, specifically the Strait of Hormuz, have surged oil prices and threatened macroeconomic stability for developing nations.

UNCTAD’s report, “Global Economy Faces a Geopolitical Challenge,” warns that a protracted escalation of these tensions raises the likelihood of deeper disruptions in global finance and trade. The report suggests this could potentially foreshadow a “cascading crisis.”

Why are energy prices surging globally?

Crude oil prices in the Middle East rose from approximately USD 60-70 to fluctuate above USD 110 since the conflict began, according to UNCTAD. This represents a surge of more than 60 percent, while gas prices have doubled.

The International Monetary Fund (IMF) records Brent crude rising over USD 100 per barrel, while European gas jumped roughly 60 percent due to LNG export disruptions. This volatility stems from a constriction of supply, as Gulf economies struggle to transport oil through the Strait of Hormuz.

The loss of capacity is estimated at 10 million barrels of oil and 500 million cubic meters of natural gas per day. These figures represent roughly 10 percent of global oil production and 5 percent of global natural gas production daily.

Did You Know? The current conflict has resulted in a daily loss of capacity equal to roughly 10 percent of the world’s total oil production.

How does this affect GDP and inflation?

The IMF’s April 2026 Regional Economic Outlook Update for the Middle East and Central Asia states that every 10 percent rise in average oil prices is likely to lead to a 0.5 percent loss in GDP for Gulf economies. Such increases may also drive inflation up by around 1 percent in those regions.

Because oil is an inelastic good, consumers cannot easily curb spending on essential tasks like food production, transportation, and shipping. The IMF notes that longer trade disruptions may lead to higher, more sustained oil prices and a larger risk premium than current oil futures prices reflect.

Expert Insight: Samantha Carter notes that the inelastic nature of energy means the economic burden shifts directly to the consumer. When essential supply chains for food and medicine are tied to volatile fuel costs, the resulting macroeconomic pressure can contract economies regardless of local policy.

What is the impact on developing nations?

Low-income and fragile states in the MENAP region are especially vulnerable to rising costs for energy, food, and fertilizer, the IMF warns. Vulnerable economies, including least developed countries and small island developing states, could face a USD 20 billion annual increase in spending.

The Impact of Geopolitical Tensions on Global Markets

Among least-developed nations, Mauritania’s bills are recorded to increase by 7.3 percent, followed by The Gambia at 6.3 percent and Burkina Faso at 5.0 percent. Liberia and Zambia each estimate an increase of 4.3 percent.

Small-island developing states face similar pressures. Vanuatu recorded a 5.8 percent increase, the Maldives 5.2 percent, Tonga 4.4 percent, Mauritius 4.2 percent, and Fiji 3.2 percent.

Will this trigger a long-term economic downturn?

UNCTAD expects the conflict to reduce capital investment in developing nations as these assets are perceived as riskier. This trend began with a sell-off of developing countries’ assets between February 28 and March 29, during which emerging market equity markets slid by more than 12 percent.

These combined effects may trigger a compacting of economic issues. Depending on the length of the conflict, the resulting downturn could take years to recover from, according to the UNCTAD report.

Frequently Asked Questions

Why has the Strait of Hormuz become a focal point for economic risk?
According to UNCTAD, a lack of transport ability through the strait has constricted supply, leaving most Gulf economies unable to output oil effectively.

Which developing nations are seeing the highest spending increases?
Mauritania is recorded to have the highest increase among least-developed nations at 7.3 percent, while Vanuatu leads small-island developing states with a 5.8 percent increase.

What was the immediate impact on emerging market equities?
UNCTAD reports that equity markets of emerging markets slid by more than 12 percent between February 28 and March 29 following the start of the Middle East conflict.

How do you think sustained energy price volatility will change global investment strategies in the coming years?