The world economy is on the brink of a major inflationary spike as soaring fuel prices threaten growth in European and Asian nations, the OECD has warned, and local economists are slashing Australia’s growth prospects for this year and the next amid the ongoing US-Israel attack on Iran.

The Organisation for Economic Cooperation and Development’s latest interim outlook said the US-Israel war on Iran will “test the resilience of the global economy”, and warned of the “significant downside risk” to their forecasts should the oil supply disruptions prove more persistent and push energy prices even higher.

The Paris-based organisation predicted inflation across G20 countries would reach 4% through 2026, or 1.2 percentage points higher than anticipated in December and before the US-Israeli bombing of Iran led to the closure of the strait of Hormuz.

The OECD downgraded growth across the Euro area countries, the UK and South Korea by 0.4 to 0.5% for this year, versus its December forecasts.

Energy exporters, including the US and Australia, would be less affected.

The international crude oil benchmark was trading at $US104 a barrel in late Thursday trade, to be up more than $US40, or 70%, since the start of this year.

The energy price shock has squashed this year’s anticipated boost to global growth from the artificial intelligence investment boom, the OECD said.

“Longer-lasting closure of oil and gas production facilities in the region with damage to critical infrastructure or persisting disruptions to exports through the strait of Hormuz would be likely to have more significant adverse consequences than currently priced into world markets,” the report said.

Adelaide Timbrell, a senior economist at ANZ, said higher oil prices and climbing interest rates would be a blow to Australia’s growth in this year and the next.

Timbrell said Australia’s growth rate would drop to 1.3% in 2026, or 0.5 percentage points lower than anticipated in February and only half of last year’s growth.

The effect of the Iran war on the economy would linger into 2027, with ANZ forecasting 1.8% growth in real GDP for next year: a “material downward revision” from the 2.2% predicted before the outbreak of the war.

Inflation would reach 4.9% by June – versus a previous forecast of 3.8% – and would end the year at a high 4.5%, instead of 3.4%.

All of these forecasts assumed that energy prices would retrace some of their gains over the back half of this year, and assume that “Australia’s fuel supply is sufficient to avoid mandatory rationing or widespread supply disruptions”, Timbrell said.

The chief economist at Barrenjoey, Jo Masters, said “it’s an inflation shock and a growth shock, but in the first instance it’s an inflation shock”.

Masters said households, at least in aggregate, were in “pretty good shape”.

“The savings rate is about $30bn a year higher than average, and Australians have been making additional mortgage payments.”

“People will feel like their life is not as good, but they do have some buffers.”

The lead partner at Deloitte Access Economics, Pradeep Philip, said it had become clearer that Australia was about to face a difficult period.

“You can see the trajectory of unemployment going up and inflation going up; that trajectory is more visible now,” he said.

Despite the size of the oil supply shock, Philip said the country was not in the throes of 1970s-style stagflation, when inflation and unemployment hit double digits.

“But people will feel the pressure of rising prices more than the official numbers would suggest, because some of the things they see every day will go up in price: petrol at the bowser, transport, food.”