Will the Iran crisis lead to a global economic recession?

The situation in the Middle East is forcing markets to reprice the prospects for global growth.

Rosenberg Research has presented three scenarios, with the only variable being when the Strait of Hormuz will reopen. In the most optimistic scenario (restored within three weeks), global growth will still drop from the pre-war forecast of 3.4% to 2.9%, which already constitutes a significant drag; in the most pessimistic scenario (blockade continues beyond July), growth could fall as low as 2.0%, approaching the threshold of a global recession.

With ongoing disruptions, the core risks facing the global economy are no longer limited to just oil price shocks, but now include a triple resonance of supply chain breakdowns, corporate profit pressures, and weak demand, with growth expectations being rapidly downgraded.

The pricing logic in the market is very clear: the longer the blockade lasts, the bigger the downgrade in growth, and the greater the valuation pressure on risk assets. Samsung's stock price doubling this year and entering the trillion-dollar club shows that AI remains the main theme, but this trade cannot be separated from macro cycles. Before the situation at Hormuz is clear, what determines the direction of assets is not the day-to-day fluctuations in oil prices, but how much global growth expectations still need to be revised downward.

Even the most optimistic has been downgraded; the most pessimistic approaches recession

Facing a highly uncertain situation, Nwal Anwar and Robert Embree of Rosenberg Research this week have presented three scenarios for global growth.

The first, and the mildest scenario, is reopening within three weeks. Even so, global economic growth this year will still drop from the pre-war expectation of 3.4% to 2.9%, meaning the shock is enough to significantly drag down growth.

The second scenario is reopening between mid-May and July. Under this assumption, global economic growth will further drop to 2.6%, and the deceleration will spread from the energy sector to broader demand and trade chains.

The third scenario assumes the blockade continues to July or even longer. According to estimates, global growth could drop to 2.5%, or even as low as 2.0%.

The current market pricing logic is already very clear: The longer the Hormuz disruption lasts, the bigger the downgrade in global growth, and the greater the valuation pressures faced by risk assets.

The risk is not just oil prices, but synchronised pressure on global supply chains

For the U.S., the most direct shock is still gasoline prices, which is also the easiest risk signal for the market to catch. But this shock spreads far beyond energy.

Compared to the First Gulf War, the Iranian Revolution, or the Arab oil embargo, the range of goods impacted by this round is much broader. Agriculture, automotive manufacturing, and materials necessary for the semiconductor industry are all facing tighter supplies, meaning risks are being transmitted from energy prices to more complex industrial chains.

Even under relatively optimistic scenarios, some countries and even parts of the U.S. may face shortages of key materials like jet fuel. For companies, this means rising costs in transportation, manufacturing, and inventory management; for markets, it means profit margins and demand expectations face dual squeezes.

This is also why, even if AI remains the market mainline, related trades are not absolutely safe. If global companies and households simultaneously contract spending, even the strongest growth narratives can hardly be fully isolated from the macro slowdown.

AI trades remain strong, but cannot escape the global macro cycle

Samsung’s stock price doubling this year and joining the trillion-dollar club shows that AI still dominates risk appetite in global equity markets. This trading logic has not reversed.

But the Hormuz shock reminds the market that AI is not a “vacuum trade” isolated from macro cycles. Even if tech capital expenditure remains strong, if global growth continues to be downgraded, multinational corporations face profit pressure and terminal demand slows, AI trades will also face valuation adjustment pressures.

For investors, the key judgment now is not whether the AI narrative is over, but whether macro risks are starting to erode its valuation premium.

Before the situation at Hormuz is clear, the market will continue to rapidly reprice every piece of news coming from the Middle East. What truly determines asset direction at present is not the daily rise and fall of oil prices, but how much global growth expectations still need to be revised downward.

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