The escalating conflict in the Middle East is casting a long shadow over the global economy, with the World Trade Organization (WTO) warning that prolonged high oil prices could significantly “crimp” the burgeoning artificial intelligence (AI) boom. The WTO’s latest Global Trade Outlook identifies the war and its ripple effects on energy and fertilizer costs as the primary risk to global trade, raising concerns that a sustained period of elevated prices could stifle investment in a sector that has been a key driver of economic growth.
The warning comes as global oil prices continue to climb amid heightened geopolitical tensions. The situation is particularly concerning given the energy-intensive nature of AI development and deployment. Robert Staiger, the WTO’s chief economist, explained that sustained high energy costs could act as a drag on AI investment, potentially slowing the pace of innovation and economic expansion. This concern is amplified by the fact that AI investment is largely concentrated among a handful of major firms, and the long-term economic benefits of the technology remain somewhat uncertain.
AI Investment and the Global Economy
The WTO’s analysis highlights the significant role AI played in offsetting the negative impacts of Donald Trump’s tariffs in 2025. The organization calculated that approximately 70% of all investment growth in North America during the first three quarters of last year was attributable to AI-related goods. This stands in stark contrast to the period leading up to the 2008 financial crisis, when real estate accounted for only 30% of investment growth.
Despite the former president’s protectionist trade policies, which pushed US tariffs to their highest levels in decades, global trade in goods still expanded by a robust 4.6% in 2025, largely thanks to strong export performance from Asian economies. However, the WTO anticipates a significant slowdown in global goods trade growth this year, projecting a rate of just 1.9% even without factoring in a prolonged energy shock. A year-long period of high energy prices, the WTO suggests, could further reduce growth by an additional 0.5% and jeopardize global food security.
The Middle East Conflict and Supply Chain Vulnerabilities
The conflict in the Middle East poses a multifaceted threat to the global economy. Beyond the immediate impact on oil prices, the region’s role as a major exporter of both energy and fertilizers means that any prolonged disruption to supply could have far-reaching consequences for food systems worldwide, exacerbating existing export restrictions. The International Energy Agency (IEA) is reportedly considering releasing additional oil reserves to aid stabilize prices, as the situation in the Strait of Hormuz remains a key concern. The IEA is weighing options to mitigate the impact of potential supply disruptions.
Staiger emphasized the downside risks to the WTO’s forecast, stating that they are “mostly linked to the conflict in the Middle East through higher energy prices, which could weigh heavily on output and trade unless they are short-lived.” The interconnectedness of the global economy means that even localized disruptions can quickly cascade into broader economic challenges.
Challenges to the WTO’s Relevance
The WTO’s warnings come at a time when the organization is facing questions about its relevance on the world stage. During Trump’s second term, the US president has repeatedly bypassed WTO rules with a wave of tariffs, while other economies have also fallen short of their commitments under trade agreements with Washington. This has led to a weakening of the multilateral trading system and a growing sense of uncertainty about the future of global trade.
The WTO’s ability to effectively address these challenges is further complicated by the complex geopolitical landscape and the ongoing conflict in the Middle East. The organization’s forecasts are subject to considerable uncertainty, and the actual outcome will depend on a range of factors, including the duration and intensity of the conflict, the response of major oil producers, and the effectiveness of international efforts to stabilize energy markets.
Looking ahead, the WTO will continue to monitor the situation closely and provide updated assessments of the risks to global trade. The next major update is scheduled for June, where the organization will release its revised trade forecasts and provide further analysis of the impact of the Middle East conflict on the global economy. The interplay between geopolitical events, energy prices, and technological innovation—particularly in the AI sector—will be critical to watch in the coming months.
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