The global economy is missing about $2.2 trillion in annual gross domestic product because of the US-Iran war, and that sum would increase the longer the conflict drags on, a new study has found.
The figure, measured in terms of purchasing power parity (PPP), represents the loss resulting from the gap between two scenarios that do not involve an immediate end to the war, the Institute for Economics and Peace said in its Global Peace Index 2026 report, released on Tuesday.
PPP is a measure that determines the relative value of currencies by comparing the cost of a basket of goods in each country, instead of relying on exchange rates, to give an idea of economic strength.
Annual global GDP losses from the war would total $1.3 trillion under a partial reopening of the Strait of Hormuz but would amount to $3.5 trillion if the war resumes, according to the report.
"Different countries are also likely to be impacted to different degrees, with fragile, high-debt energy importers particularly likely to be heavily impacted,” analysts at the Sydney-based IEP wrote.
The multitrillion-dollar figure is "the value of successful diplomacy”, they added.
One of the two scenarios used by the IEP is an extended ceasefire or stalemate, a likely outcome in which the Strait of Hormuz is partially reopened, but Iran's navy continues its harassment and shipping risk premiums remain high.
The other is that the conflict resumes with no agreement reached, Iran resumes attacks on Gulf energy infrastructure and the strait remains shut – although the IEP considers this a low-to-medium outcome. Washington and Tehran remain deadlocked in their negotiations.
A third scenario simulates that the war ends "now” – although the IEP considers that this possibility has "passed” as it covers the February-to-April period, with economic losses during the first part of the war unrecoverable.
The IEP notes that the Iran war's aggregate impact on global GDP, estimated at 0.6 per cent of global output under the most likely scenario, looks smaller than the impacts of the global financial crisis of 2008, the Covid-19 pandemic, or the height of the Russia-Ukraine war in 2022 when viewed in headline terms.
"However, the headline understates the shock. The Iran war is defined by an unusual geographic concentration, the way different channels of disruption interact, and by the pre-existing fragility of the economies that bear most of the burden,” it said.
Countries most affected
When it comes to infrastructure damage, Iran has suffered the most in terms of value, having been subjected to joint military action by the US and Israel.
Damage to Iran is estimated to be as low as $80 billion in the war-ends-now scenario and as high as $350 billion if the conflict resumes, according to IEP calculations.
Those figures are nowhere near the damage estimates for Gulf countries - which have been targeted by Iran as retaliation, and Israel and Iraq.
Qatar, the world's leading natural gas exporter, has the biggest estimated damage in the region, ranging from $15 billion to $60 billion. The latter figure matches the high estimates for Saudi Arabia and Israel.
The UAE is in the middle, with a range of $3 billion to $35 billion, while Oman – to be "blown up” by US President Donald Trump – has the lowest, from $500 million to $5 billion.
The figures cover energy facilities, military bases, ports and critical civilian infrastructure, and also include costs for replacement or repair. They do not include long-term reconstruction investment, lost future capital spending or knock-on economic costs, the IEP said.
Adding to the financial challenges for energy-exporting Gulf countries is lost revenue resulting from the closure of the Strait of Hormuz, which has remained a sticking point in US-Iran negotiations.
"The countries closest to the conflict this time are hit twice over, cut off from export revenue at the very moment their import costs rise and their infrastructure is damaged,” the IEP analysts said.
In terms of GDP, Iran remains the most affected. In the ceasefire scenario, its economy is estimated to contract by 15 per cent and lose nearly $268 billion, the IEP data showed. A restart of the war would take those figures to 25 per cent and $446 billion, respectively.
A resumption of hostilities would cause the economies of Bahrain and Kuwait to both shrink by 10 per cent, costing them about $12 billion and $28 billion, respectively, while Qatar would shed 15 per cent, or almost $54 billion.
Under the same scenario, the UAE economy would fall by 8 per cent, or more than $80 billion. Saudi Arabia would shrink by 6 per cent, but its GDP loss would amount to nearly $174 billion, reflecting the big role of the kingdom's energy sector.
The IEP noted the efforts of the UAE and Saudi Arabia, which have managed to recover a combined seven million barrels per day of their oil exports through alternative pipelines.
The institute, however, cautioned that the full economic impact of the Iran war has yet to be felt.
"There are many ways in which it could affect global economic activity over the next few years, depending on the course the war takes,” their analysts said.
