IMF warns of lasting economic impact from war-triggered supply disruptions
Baku, April 7, AZERTAC
The ongoing conflict in the Middle East is expected to weigh heavily on the global economy, pushing inflation higher while slowing economic growth, according to the International Monetary Fund (IMF), Reuters reported. The warning comes ahead of the IMF’s updated global outlook, scheduled for release next week.
The war has triggered an unprecedented disruption in global energy supplies, with a significant portion of oil production curtailed after Iran effectively blocked the Strait of Hormuz, a critical route that handles roughly one-fifth of global oil and gas shipments. The supply shock has already reduced global oil availability by about 13%, sending ripple effects across energy markets and related supply chains.
IMF Managing Director Kristalina Georgieva indicated that even in the event of a swift resolution, the global lender is likely to downgrade its growth projections while raising its inflation outlook. Before the conflict, the IMF had expected a modest improvement in global growth, projecting expansion of 3.3% in 2026 and 3.2% in 2027 as economies continued recovering from the pandemic.
The crisis is set to dominate discussions at the upcoming IMF and World Bank Spring Meetings in Washington. The IMF will present multiple scenarios in its World Economic Outlook on April 14, reflecting varying durations and intensities of the conflict. Earlier signals from the Fund had already pointed to a likely downgrade, citing the asymmetric shock created by the war alongside tightening global financial conditions.
The economic impact is expected to be uneven, with energy-importing nations facing the greatest strain. Nearly 85% of IMF member countries fall into this category, leaving many vulnerable to rising fuel costs and imported inflation. Low-income countries, in particular, face heightened risks due to limited fiscal capacity to cushion the shock, increasing the likelihood of social and economic instability.
While some nations have already approached the IMF for financial assistance, Reuters reported that the institution is exploring ways to expand existing lending programs to meet emerging needs. At the same time, policymakers have been cautioned against broad energy subsidies, as these could further fuel inflationary pressures.
Even energy-exporting countries are not immune. Nations like Qatar have suffered disruptions, with damage to production facilities expected to take several years to fully repair. Data from the International Energy Agency shows that dozens of energy facilities have been impacted, with a significant share sustaining major damage.
The conflict has also raised concerns about food security. Rising energy costs and potential disruptions to fertiliser supplies could pose risks to global food production. While a full-blown food crisis has not yet materialised, international agencies are closely monitoring the situation, particularly in vulnerable regions.
Oil prices have surged in response to the crisis, with Brent crude trading near $110 per barrel, reflecting both supply disruptions and heightened geopolitical risk. Global institutions, including the IMF, World Bank, and International Energy Agency, are coordinating efforts to assess the broader economic and energy implications.
Even if hostilities cease in the near term, the IMF expects lasting damage to global growth and price stability, underscoring the far-reaching consequences of the conflict on the world economy.
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