OECD Downplays Stagflation Risks amid Iran Crisis, Citing Energy-Driven Inflation

The Organisation for Economic Co-operation and Development (OECD) played down fears of a return to stagflation in the wake of escalating tensions linked to Iran, arguing that while inflationary pressures are rising, a prolonged combination of high inflation and weak growth is not the most likely scenario.

Speaking at an economic forum in Delphi, OECD Secretary-General Mathias Cormann said the organization does not view stagflation as its baseline outlook, even as global markets grapple with the fallout from geopolitical instability in the Middle East.

“We do not see stagflation as the central scenario,” Cormann said, responding to concerns about a potential repeat of the economic turmoil experienced during the 1970s stagflation.

Cormann emphasized that current inflation dynamics differ significantly from those of the 1970s. Rather than being driven by broad-based demand pressures, today’s price increases are largely the result of a targeted shock in energy markets.

The surge in oil and gas prices, fueled by tensions around key supply routes such as the Strait of Hormuz, has pushed up costs across economies, but has not yet triggered the kind of wage-price spiral typically associated with stagflation.

Despite rising uncertainty, the OECD maintains that the global economy retains underlying strengths. In its latest interim outlook published in March, the organization noted that economic activity entered 2026 on relatively stable footing, supported by strong technology-driven productivity and continued growth momentum carried over from 2025.

Lower effective U.S. import tariffs have also contributed to sustaining global trade flows, helping cushion the impact of geopolitical disruptions.

However, the OECD acknowledged that the crises in the Middle East is likely to generate renewed inflationary pressures, particularly through higher energy costs. The organization warned that supply shocks could weigh on global growth while simultaneously pushing prices higher in the near term.

This combination, slower growth alongside rising inflation, has revived concerns among investors and policymakers about stagflation risks, even if the OECD views such an outcome as unlikely.