The conflict in the Middle East will lead to an acceleration in inflation and a slowdown in global growth, the managing director of the International Monetary Fund told Reuters on Monday, ahead of the institution’s global economic forecasts scheduled for next week.
The war caused the most serious disruption to global energy supplies in history, with millions of barrels of oil taken off the market due to Iran’s effective blockade of the Strait of Hormuz, a crucial crossing point for a fifth of the world’s oil and gas. Even if the conflict is resolved quickly, the IMF is prepared to lower its economic growth forecasts and raise its inflation outlook, said Kristalina Georgieva, Managing Director of the IMF.
The conflict is expected to dominate discussions among world financial officials at the spring meetings of the IMF and World Bank next week in Washington.
The Fund is expected to publish a series of scenarios in its next World Economic Outlook due April 14. The institution had already signaled a possible downward revision in a blog post on March 30, citing the asymmetric shock of the war and the tightening of financial conditions. Without this conflict, Ms. Georgieva indicated that the IMF expected a slight upward revision of its global growth projections, to 3.3% in 2026 and 3.2% in 2027, as economies continue their post-pandemic recovery.
“Instead, all roads now lead to higher prices and slower growth,” said Georgieva, who will preview the spring meetings in a speech on Thursday. World Bank President Ajay Banga will present his analysis at an Atlantic Council event on Tuesday.
“We are operating in a world of high uncertainty,” stressed the head of the IMF, citing geopolitical tensions, technological advances, climate shocks and demographic changes. “All this means is that after recovering from this shock, we will need to remain vigilant for the next one.”
The war reduced global oil supplies by 13%, Georgieva said, with the impact spilling over into oil and gas shipments as well as related supply chains, such as helium and fertilizer.
Even a rapid end to hostilities and a fairly rapid recovery will result in a “relatively limited” downward revision of growth forecasts and an upward revision of inflation, she added. If the war drags on, the effect on inflation and growth will be more pronounced.
POOR COUNTRIES WILL BE MOST AFFECTED
Poor and vulnerable countries lacking energy reserves will be hardest hit, Georgieva added, noting that many countries had little or no fiscal space to help their populations cope with price increases caused by the war, which also increases the risks of social instability.
Ms Georgieva indicated that some countries had already requested financial aid, without naming them. She specified that the IMF could increase certain existing loan programs to meet the needs of States. Eighty-five percent of IMF members are net energy importers.
Across the board energy subsidies are not the solution, she said, urging policymakers to avoid public transfers that could further fuel inflationary pressures.
The impact has proven to be asymmetric, hitting energy-importing countries hard, but even exporters like Qatar are feeling the effects of Iranian strikes against their production facilities.
Qatar estimates it will take three to five years to restore 17% of its natural gas production due to damage, Georgieva said, while the International Energy Agency reported that 72 energy facilities were damaged by the war, a third of which suffered significant damage.
“Even if the war were to end today, there would still be a lasting negative impact on the rest of the world,” she said.
CONCERN GROWS ABOUT FOOD SECURITY
After the offensive by the United States and Israel on February 28, Iran effectively closed the Strait of Hormuz, propelling crude oil and liquefied natural gas prices to record highs. The international benchmark, Brent, closed near $110 on Monday, with physical indices in the Middle East showing a substantial premium to that price.
The heads of the IMF, the IEA and the World Bank said last week that they would coordinate their efforts to assess the energy and economic consequences of the conflict.
Georgieva added that the IMF also collaborates with the United Nations World Food Program and the Food and Agriculture Organization on food security issues.
The World Food Program said in mid-March that millions of people would face acute hunger if the war continued into June. Ms. Georgieva clarified that the IMF did not yet perceive a food crisis, but that it could occur if the supply of fertilizer was compromised.
