When Iran Becomes the Variable, Global Forecasting Stops Looking Precise

The most immediate forecasting failure has been macroeconomic. The OECD said the global economy had been on course for stronger-than-expected growth before the Iran war escalated, but that upside has effectively vanished as the near-halt in energy shipments through the Strait of Hormuz pushes prices higher and clouds the outlook. It now projects global GDP growth at 2.9% in 2026 and 3.0% in 2027, and says G20 inflation in 2026 will run 1.2 percentage points higher than previously expected, at 4.0%. In an adverse scenario where energy prices stay elevated for longer, global growth would be another 0.5 percentage points lower by the second year of the shock while inflation would be 0.9 points higher.

What makes this especially important for finance is that the problem is no longer limited to economists revising spreadsheets. Reuters reported that volatility has strained trading across U.S. Treasuries, oil, currencies, and gold, with investors saying it has become harder to get prices or execute size as market makers pull back from risk. Morgan Stanley data cited by Reuters showed the bid-ask spread on newly issued two-year U.S. Treasuries widened roughly 27% in March versus February, while liquidity in parts of the European rates market was at one point running at just 10% of normal levels. When the world’s benchmark safe assets become harder and more expensive to trade, forecasting loses reliability because markets themselves stop transmitting clean signals.

European regulators have now started describing the issue in exactly those terms. In their Spring 2026 risk update, the European Supervisory Authorities warned that the Middle East war poses significant risks to the global financial landscape through higher energy prices, inflationary pressure, weaker growth, sudden repricing, and reduced liquidity. They also highlighted the risk that such volatility can trigger wider revaluations and spill over into more opaque parts of finance. That matters because it shows supervisors are no longer treating the conflict as an isolated external shock; they are treating it as a force that can alter funding conditions, asset quality, and market functioning at the same time.

The deeper lesson is that forecasting tools remain useful, but only within clearly stated assumptions. The BIS noted in its March 2026 Quarterly Review that models can produce conditional forecasts under alternative oil-price paths, but also stressed that these exercises reflect historical relationships in the data rather than the causal impact of unobservable macro shocks. In other words, the problem is not that forecasting has become worthless. It is that a geopolitical rupture like Iran rapidly changes the assumptions underneath forecasts faster than models, markets, and even central banks can comfortably adapt. That is why this episode feels more unsettling than a normal commodity spike: it is forcing investors to confront how much of global finance still depends on a stable world that no longer exists.