IMF braces for a war-driven world slowdown

Mounting economic damage from the Middle East war is set to push inflation higher and global growth lower, IMF managing director Kristalina Georgieva has warned, as the fund prepares to cut its growth outlook and raise its inflation projections in its World Economic Outlook due on April 14. The warning comes as the conflict has triggered what the International Energy Agency has described as the largest supply disruption in the history of the global oil market, centred on the Strait of Hormuz, a chokepoint for about a fifth of global oil use and roughly a quarter of seaborne oil trade.

Speaking ahead of next week’s forecast update, Georgieva told Reuters that even a swift end to the fighting would not prevent the IMF from marking down the world economy. She said the war had already caused the worst disruption in global energy supplies on record, with millions of barrels of oil production shut in and oil flows through Hormuz severely impaired. Reuters reported that the IMF now estimates global oil supply has already shrunk by 13%, a shock large enough to ripple far beyond fuel markets into transport, manufacturing and food systems.

War shock darkens global outlook

The IMF’s assessment sharpens fears that the global economy is entering another stagflationary phase, with weaker output colliding with higher prices. That risk is no longer confined to policymakers. ECB rate-setter Yannis Stournaras said on April 6 that euro zone monetary policy would depend on how large and persistent the energy disruption proves to be, signalling that central banks are again confronting the possibility that an external oil shock could keep price pressures elevated for longer than expected. JPMorgan Chase chief executive Jamie Dimon issued a similar warning, saying the Iran war could reignite inflation and keep interest rates higher than markets had been expecting.

What makes this episode especially severe is the scale of the supply hit and the limited ability to reroute it. The IEA said in March that crude and oil product flows through Hormuz had plunged from around 20 million barrels a day before the war to a trickle, forcing Gulf producers to cut output by at least 10 million barrels a day. While some exporters such as Saudi Arabia and Oman retain partial alternatives, others have been left heavily exposed. Reuters reported that Iraq’s oil exports have dropped by 80%, while Kuwait and Qatar have also suffered steep losses because they lack sufficient bypass routes.

Oil markets have responded violently. Reuters reported that Brent crude rose 60% in March after the Hormuz closure, while fresh trading on April 7 showed Brent above $110 a barrel and US crude above $113 as traders weighed the risk of further escalation and the absence of a durable reopening of the waterway. For import-dependent economies, that price shock feeds quickly into transport costs, electricity generation, industrial inputs and household bills. Pakistan, for example, raised diesel and petrol prices sharply last week after global crude prices surged, underlining how quickly the burden is being passed on to consumers in vulnerable economies.

The inflation threat also extends well beyond energy. Georgieva said the fund was tracking disruptions to helium and fertiliser supply chains as part of the wider economic fallout. Fertiliser markets are particularly sensitive because natural gas is a key feedstock, meaning any sustained interruption in Gulf gas flows could feed into food production and food inflation later in the year. Reuters said the IMF, World Bank and IEA are already coordinating responses, while UN agencies are monitoring food security risks, particularly for poorer countries with limited fiscal space. Georgieva warned that low-income states could be hit hardest because they have fewer resources to cushion households from rising import costs and social strains.

That distributional impact matters as much as the headline growth downgrade. Wealthier energy exporters may capture windfall gains if they can still move barrels to market, but energy importers face a harsher arithmetic of wider trade deficits, weaker currencies and more stubborn inflation. Even some Gulf producers are not escaping unscathed. Reuters reported that although Saudi Arabia has benefited from its East-West pipeline, Qatar has sustained significant losses, highlighting how geography and infrastructure now shape who can absorb the shock and who cannot.