Standard Chartered: Early Middle East De-escalation Could Anchor Long-Term Inflation

Standard Chartered has identified a “soft landing” for the global economy as the most likely scenario in 2026, assigning it a 60% probability, even as geopolitical tensions in the Middle East continue to cast uncertainty over inflation and growth trajectories.

In a recent report, the bank pointed to expectations that the Strait of Hormuz could reopen to maritime traffic within weeks. Analysts argue that structural constraints on both the United States and Iran make a prolonged closure unlikely, easing fears of sustained supply disruptions.

According to the report, such developments would support a controlled slowdown in global growth, tempering economic activity without tipping into recession. While elevated oil prices may continue to exert short-term inflationary pressure, an early resolution to the regional conflict could help anchor long-term inflation expectations. This, in turn, would give central banks more room to refocus on underlying economic fundamentals.

Federal Reserve policy is expected to remain steady through the first half of the year, with a modest rate cut of 25 basis points anticipated later as attention shifts toward labor market support. Meanwhile, the European Central Bank is projected to deliver a single rate hike, while the Bank of Japan may implement two increases to counter persistent inflation.

In contrast, China is likely to lean toward monetary easing, aiming to bolster consumption-led growth amid uneven recovery dynamics.

Despite the relatively optimistic baseline, Standard Chartered raised the probability of a more severe “hard landing” scenario to 30%. This outcome could materialize if oil prices remain elevated for an extended period due to escalating Middle East tensions, potentially delaying U.S. rate cuts and eroding real incomes and consumer demand.

Additional risks highlighted in the report include a downturn in global equity markets that could undermine investor confidence, as well as a potential bond market sell-off driven by inflationary concerns or mounting sovereign debt pressures.

The bank assigned a 10% probability to a more favorable “no landing” scenario, contingent on a swift resolution to the Middle East conflict. Such an outcome, combined with supportive fiscal measures, including potential tax cuts in the United States and looser fiscal policies in Germany, China, and Japan, could significantly boost global growth.

Further upside catalysts include a peace agreement between Russia and Ukraine, a broad economic accord between Washington and Beijing, or increased defense spending across Europe.

As global markets navigate a complex mix of geopolitical tensions and policy shifts, the trajectory of inflation, and the timing of central bank responses, will remain closely tied to developments in the Middle East.