The world waits for a climbdown in World Economy News 17/04/2026 Our new base case scenario It was 1983 when the movie WarGames taught a generation that the only winning move in a nuclear standoff is not to play. Forty-plus years later, economists find themselves in a similar bind, except we don’t have the luxury of walking away from the board. Wars have become our subject matter, and the 2020s have been unforgiving. War is not a game. Lucky as I am to have only experienced the Cold War as a child, it is still almost unimaginable that we economists now have to become experts on war, or at least on the economic impact of conflict. The biggest lesson I’ve learnt is that predicting how military conflicts develop is close to impossible. And that’s why, instead of having strong conviction calls, the best thing we can offer is scenario analysis. We’re trying to understand the mechanisms and transmission channels at play, not to pretend we know when or how the war in the Middle East or Ukraine will end. In our new base-case scenario, we assume negotiations between Iran and the United States will drag on, prompting renewed tensions and even limited, calibrated military actions. It will take another 2 to 4 weeks before a deal is reached, uncertainty begins to retreat, and the Strait of Hormuz reopens. But don’t forget that once that does happen, it will take a while before traffic returns to pre-war levels; insurers and shipowners will be cautious, at first. In this scenario, we see oil prices gradually retreating to below 90 USD/b by the end of the year. The 2022 playbook, with one big difference It is obvious that with every passing day of a de facto blockade of the Strait of Hormuz, the risk of knock-on effects for the global economy grows. Consumers around the world are already feeling the sting of higher energy prices. Companies will be next, facing either new supply chain constraints or energy costs too high to make production viable, or both at once. It’s the 2022 playbook, but at the risk of sounding like a broken record, one big difference between then and now is that four years ago, the global economy was emerging from lockdown with healthy balance sheets and an almost unstoppable consumer appetite to go out and spend – the perfect breeding ground for fast-spreading inflation. This time, the inflationary impact of an energy price crisis is likely to be more muted, as consumers will be far more reluctant to open their wallets. You can already see that reluctance in reported willingness-to-spend indicators, which are currently well below 2022 levels. At the same time, the hit to economic activity could be sharper than in 2022: Asia will be harder hit by potential energy supply constraints, and public finances on both sides of the Atlantic are more stretched, leaving less room for fiscal stimulus. Watch out for companies in the middle of supply chains: they may end up squeezed the hardest. One of the worst challenges for central banks The six weeks of war in the Middle East have created a new stagflationary drag on the global economy. This wave will vary somewhat across regions and intensify the longer the conflict lasts, but it poses one of the worst challenges central banks can face. As in 2022, we will increasingly see the return of “team transitory” versus “team structural”, the former arguing that monetary policy can do very little about a genuine supply-side shock, the latter pushing for pre-emptive rate hikes to prevent price-wage