Citi: Turmoil in the Middle East—Assessing the Longer-term Implications - FJElite

With Iran-related headwinds persisting, we have trimmed our expectations for global growth to 2.7% this year. In tandem, we have marked up our forecast for global headline inflation to 3.3%. These revisions reflect the imprint of higher oil prices and accompanying supply-chain disruptions. We continue to view our projections as provisional—and are prepared to revise as events require. While we see evidence from both sides that the appetite for further conflict may be waning, we also judge that the risks to our forecast remain skewed to the downside. As such, we also consider an adverse scenario in which renewed tensions could push Brent oil prices to $120/barrel through the end of the year. We estimate this could drive down global growth to between 1.5% and 2% and lift headline inflation to nearly 5%.