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The Middle East crisis will fuel a surge in US inflation to 4.2 per cent this year, the highest in the G7, according to an OECD forecast that highlights the cost of the US-Israeli war with Iran.

The Paris-based organisation predicted that energy price rises would sharply increase inflation around the world, with “significant downside risks” to growth if disruptions to energy exports worsened.

While the OECD expects US inflation to jump from 2.6 per cent in 2025, countries including China, South Korea and India also face a sharp increase in price growth because of the energy shock.

“The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth,” the organisation predicted in its interim economic outlook.

Rising pressure on consumers would hurt US economic growth, which is expected to slow to 2 per cent this year and 1.7 per cent in 2027, the OECD said. Global growth is forecast to slow from 3.3 per cent last year to 2.9 per cent in 2026, before picking up to 3 per cent next year.

Prior to the Iran war, global growth was proving resilient, driven in part by a jump in capital spending on AI as well as surging stock markets.

But the prognosis has changed radically since the US and Israel launched attacks on Iran at the end of February, pushing up oil and natural gas prices and sending ripple effects through other commodities including metals and fertiliser.