The International Monetary Fund says the war in the Middle East is already transmitting a costly shock to the world economy and risks ushering in a period of slower output alongside higher prices, with the poorest nations likely to suffer most.
In a blog post on its website, the IMF set out three principal channels through which the conflict is hurting global activity: severely curtailed energy flows, interrupted trade and supply chains, and heightened financial market stress. ...
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According to the IMF, disruptions around the Strait of Hormuz , a key transit corridor for crude and liquefied natural gas , have driven a marked tightening of global energy markets, lifting fuel costs for governments, businesses and households in energy-importing economies and eroding purchasing power more broadly.
The fund warned that spillovers go well beyond hydrocarbons. Rerouting of shipping to avoid the conflict zone has pushed up freight and insurance charges and lengthened delivery times, while shipments of fertiliser and other agricultural inputs that pass through the Gulf are at risk. The IMF said any sustained squeeze on fertiliser supplies could dent harvests and elevate food prices, a development that would hit low-income countries disproportionately because they spend a larger share of income on food.
Financial contagion is adding to the strain. The fund pointed to falling equity markets, higher borrowing costs and tighter cross-border financing conditions, noting that many emerging and low-income countries entered the episode already carrying heavy debt burdens and limited fiscal headroom. That combination, the IMF argued, constrains governments’ ability to shield vulnerable populations from rising import bills and currency pressures.
IMF Managing Director Kristalina Georgieva has warned that a protracted conflict could test global economic resilience, broadening the squeeze on growth and inflation and complicating policy responses. The fund said it is preparing to scale up financing and advisory support for countries most at risk and will publish a fuller assessment in its forthcoming economic reports in April.
Independent energy authorities have sounded an even sharper alarm. According to the International Energy Agency, the near-paralysis of the Strait of Hormuz represents an unprecedented threat to global energy security; IEA Executive Director Fatih Birol called it “the greatest global energy security threat in history.” The agency estimates current disruptions have removed millions of barrels of oil and substantial volumes of gas from world markets and has deployed the largest emergency release of oil reserves in its history to temper the shock. The IEA also warned that interruptions are affecting chemicals and critical industrial inputs beyond fuel and urged conservation measures and other responses to blunt the immediate impact.
Several analysts and commentators have flagged the risk of stagflation , the combination of stagnant growth and persistent inflation , as higher energy and food costs feed through to wider price-setting. The IMF cautioned that if elevated prices become entrenched in expectations, central banks will face more difficult trade-offs between reining in inflation and supporting activity.
Policy prescriptions from the IMF emphasise targeted, temporary measures to protect the most vulnerable while preserving medium-term fiscal sustainability. The fund urged countries with room to manoeuvre to consider direct support for poor households and firms most exposed to energy and food price shocks, while calling on international partners to step up financing for low-income states facing balance-of-payments pressures.
The trajectory of the shock will hinge on the duration and geographic spread of the conflict, the IMF noted. If tensions ease and transit routes reopen, the acute phase could abate; if not, economists warn of deeper and longer-lasting damage, particularly in regions reliant on imported energy and fertilisers. The IMF and other agencies have pledged continued monitoring and further analysis as conditions evolve.
Source: Noah Wire Services
