Iran war ‘shock’ is dimming outlook for many economies, IMF says

WASHINGTON: The war in the Middle East has caused serious disruption to the economies of frontline countries, and is dimming the outlook for many economies that had just started to recover from previous crises, the International Monetary Fund warned on Monday.

In a blog published by the global lender’s top economists, the IMF said the war launched by U.S. and Israeli strikes against Iran on February 28 was causing a global, but asymmetric shock and leading to tighter financial conditions.

Iran’s closure of the Strait of Hormuz and damage to regional infrastructure caused the largest disruption to the global oil market in history, given that 25%-30% of global oil and 20% of liquefied natural gas normally passed through the narrow waterway, according to the International Energy Agency.

Oil prices on Monday were set for a record monthly rise.

The war’s impact would depend on how long it lasts, how far it spreads and how much damage it inflicts on infrastructure and supply chains, the IMF said, urging countries to carefully calibrate any measures to manage the shock.

The IMF was also supporting member countries with policy advice and financial assistance, where needed and in coordination with the international community, the fund said.

The IMF statement came as finance leaders from the Group of Seven economic powers said they were ready to take “all necessary measures” to safeguard energy market stability and limit broader economic spillovers from recent volatility.

The International Energy Agency’s 32 members agreed earlier this month to release a record 400 million barrels of oil from strategic stockpiles to combat a spike in global crude prices.

Poorest countries at risk of food insecurity

The IMF blog said low-income countries were at particular risk of food insecurity, given higher food and fertilizer prices, and might need more external support at a time when many advanced economies were scaling back their international assistance.

“Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth,” the economists wrote.

They noted that large energy importers in Asia and Europe were bearing the brunt of higher fuel and input prices, while countries in Africa and Asia were finding it hard to access the supplies they need, even at inflated prices.

A long conflict and the associated uncertainty and geopolitical risk could keep energy expensive and strain countries that rely on imports, tensions could linger and inflation could prove hard to tame, they said.

The IMF said it will release a fuller assessment in its World Economic Outlook, to be published on April 14, during the IMF and World Bank spring meetings in Washington.

If elevated energy and food prices persist, they will fuel inflation worldwide, the authors wrote, noting that sustained oil‑price spikes have historically tended to push inflation higher and growth lower.

The war could also fuel expectations that inflation will remain higher for longer, which could translate into higher wages and prices, making it harder to contain the shock without a sharper slowdown, they said.