War in the Gulf Sends Shockwaves Through Global Markets, Says KPMG Chief Economist

In a stark conversation with NPR’s Leila Fadel, KPMG chief economist Diane Swonk painted a picture of a world economy caught in a tempest as the Iran‑Israel war rages on. She explained that the conflict has already tightened global credit markets, with banks growing wary of exposure to the region and consequently tightening lending standards across emerging markets. Supply chains, especially those dependent on Gulf oil and petrochemicals, are seeing delays that ripple outward, nudging prices higher and forcing manufacturers to re‑evaluate inventory strategies. Swonk stressed that the longer the hostilities continue, the deeper the scar will become on growth forecasts.

Swonk highlighted that oil prices have spiked to levels not seen since the early 2020s, a surge that is amplifying inflationary pressures in both developed and developing economies. Higher energy costs are feeding through to transportation, manufacturing, and even consumer goods, eroding purchasing power for households worldwide. She warned that central banks may find themselves in a bind: they must balance the temptation to raise rates to curb inflation against the risk of choking off growth that is already under strain from the conflict. The delicate dance could see policy rates lingering at higher levels for longer than anticipated.

Beyond oil, the war is reverberating through other commodity markets. Wheat and fertilizer exports from the region have been disrupted, prompting concerns over food security in vulnerable nations. Swonk noted that the International Energy Agency has revised its supply outlook, flagging a potential shortfall that could push prices even higher if diplomatic channels fail to restore stability. Meanwhile, the World Bank warned that the compounded shocks could push an additional 10 million people into extreme poverty by 2027, a stark reminder that the economic fallout is as human as it is fiscal.

Businesses, according to Swonk, must adopt a dual‑track approach: hedge exposure where possible and diversify supply chains to mitigate future risk. Companies with significant exposure to Gulf‑based logistics are being urged to explore alternative routes and consider sourcing from more stable regions, even if it means higher short‑term costs. She also stressed the importance of scenario planning, urging CEOs to model outcomes ranging from a quick cease‑fire to a protracted stalemate, as each scenario carries distinct ramifications for cash flow, investment, and workforce planning.

The broader geopolitical canvas adds another layer of uncertainty. Sanctions regimes, shifting alliances, and the potential for broader regional escalation could further strain the global financial system. Swonk concluded that while markets have shown remarkable resilience, the war’s shadow is long, and policymakers, investors, and corporate leaders must remain vigilant. The message from KPMG’s chief economist is clear: the storm may subside, but the economic tides it lifts will continue to reshape the world’s fiscal shoreline for years to come.