The latest report from Oxford Economics is warning that the peace agreement between the US and Iran is the key risk for the rest of 2026.
The report, entitled “The dominos to watch in the second half of the year”, notes that conflict in the Middle East, disruption to AI supply chains, trade policy uncertainty are the key risks facing the global economy.
Chief Global Economist Ryan Sweet identified the peace agreement between the US and Iran as the most significant threat.
“Its durability will determine whether the global economy gets an energy-driven disinflation tailwind or absorbs a second oil shock,” he said. “It’s the key domino that will determine whether other risks are amplified or dampened.”
The firm is also keeping a close eye on disruption to AI supply chains, a persistent risk, which could occur through numerous channels beyond a chip shortage.
Speaking on RTÉ’s Morning Ireland, Chief Economist of the Institute of International and European Affairs and columnist at The Currency, Dan O’Brien, describes it as “a very plausible, solid report.”
However, he mused that we need to “look at the glass half full.”
“Over the past three months, we saw energy prices go way up, we thought we were going to have another cost of living crisis,” he said.
“Energy prices have come way back down again, and we’re not going to have an energy crisis, a cost of living crisis, which I think is the good news,” said Mr O’Brien.
Even if the there was an escalation in the Middle East again, he believes while there is a risk, there’s “not a recession sort of risk”.
He said oil prices are now lower than they have been on average over the past five years.
While he acknowledges that if the conflict reignites, and the Strait of Hormuz closed again, it would stop oil and liquefied natural gas coming out and cause prices to rise again.
Despite this, he believes the actors in the oil and gas market are very dynamic.
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“If they see prices going up, they increase production as happened during the recent closure and that means that prices didn’t go up nearly as much as many people thought they would,” Mr O’Brien explained.
“Now, if we get a closure again, it’s going to be bad. It’ll be negative for energy prices, it’ll cause another increase in inflation a bit, but overall, I think the players are more prepared now, ” he said.
The Oxford Economics brief also warns that trade policy uncertainty is structural, and more tariffs are coming.
It expects Section 301 tariffs to result in marginally higher US rates from late July – The US Treasury’s authority to adjust tariff rates without new investigations means effective rates can shift at any time.
“Add the USMCA review cycle and 50+ EU-China trade defence investigations, and trade policy headwinds will persist regardless of the Middle East crisis,” it cautions.
Mr O’Brien said while it is likely the Trump administration will find another way of increasing tariffs, he also said not to worry too much as the negative effects feared over the US tariffs had a much lesser effect on the US and the rest of the world.
” A sort of key message I would take from this report is this decade we have seen a pandemic, we’ve seen inflation wars, interest rate rises, we’ve seen huge numbers of shocks on economies, but incredible resilience,” he said.
“Resilience is something that I think we should be reassured by in recent economic history,” he concluded.
