- War reduced global oil supply by 13%, says IMF chief.
- The ME conflict will dominate IMF and World Bank meetings next week.
- Barring war, the IMF expected slight improvements in its outlook.
War in the Middle East will lead to higher inflation and a slowdown in global growth, the head of the International Monetary Fund (IMF) has said. Reuters Monday, ahead of the global lender’s forecast for the global economy for next week.
The war triggered the worst disruption to global energy supplies, with production of millions of barrels of oil halted due to Iran’s effective blockade of the Strait of Hormuz, crucial for transporting a fifth of the world’s oil and gas.
Even if the conflict is quickly resolved, the IMF is likely to cut its economic growth forecast and raise its inflation forecast, said Kristalina Georgieva, IMF managing director.
The war is expected to dominate discussions among world financial leaders at the spring meetings of the IMF and World Bank next week in Washington.
The Fund is expected to release a series of scenarios in its next World Economic Outlook, due April 14.
He flagged a possible deterioration in a March 30 blog post, citing the asymmetric shock of war and tightening financial conditions. Without the war, Georgieva said the IMF expected a slight upward revision to its projection of global growth of 3.3% in 2026 and 3.2% in 2027, as economies continue to recover from the pandemic.
“Instead, all roads now lead to higher prices and slower growth,” said Georgieva, who will preview the spring meetings in a speech Thursday. World Bank President Ajay Banga will present his views Tuesday at an Atlantic Council event.
“We are in a world of high uncertainty,” the IMF chief said, citing geopolitical tensions, technological advances, climate shocks and demographic changes. “All this means that once we recover from this shock, we will have to keep our eyes open for the next one.”
The war has reduced global oil supplies by 13%, Georgieva said, with an impact rippling through oil and gas shipments and associated supply chains such as helium and fertilizer.
Even a quick end to hostilities and a fairly rapid recovery will result in a “relatively small” downward revision of growth forecasts and an upward revision of inflation forecasts, she said. If the war continues, the effect on inflation and growth will be greater.
Poor countries will be hit hardest
Poor and vulnerable countries lacking energy reserves will be hardest hit, Georgieva added, pointing out that many countries had little or no fiscal space to help their populations cope with price increases caused by the war, which also increased the prospects of social unrest.
Georgieva said some countries had already requested financial assistance, but without naming them. She said the IMF could increase some existing loan programs to meet countries’ needs. Eighty-five percent of IMF members are energy importers.
Large energy subsidies are not the solution, she said, urging policymakers to avoid government payments that could further aggravate inflationary pressures.
The impact has been asymmetric, hitting energy-importing countries hardest, but even energy exporters like Qatar are feeling the effects of Iranian strikes on their production facilities.
Qatar expects it will take three to five years to restore 17% of its natural gas production due to the damage, Georgieva said, while the International Energy Agency reported that 72 energy facilities were damaged during the war, with a third suffering significant damage.
“Even if the war were to end today, it would have a lingering negative impact on the rest of the world,” she said.
Food safety is a concern
After the attack on the United States and Israel on February 28, Iran effectively closed the Strait of Hormuz, significantly increasing the price of crude oil and liquefied natural gas. The international benchmark Brent crude price settled near $110 on Monday, with cash benchmarks from the Middle East representing a substantial premium to that price.
The leaders of the IMF, IEA and World Bank announced last week that they would form a coordinated effort to assess the energy and economic effects of the war.
Georgieva said the IMF was also engaging with the United Nations World Food Program and the Food and Agriculture Organization on food security.
The World Food Program said in mid-March that millions of people would face acute famine if the war continued into June. Georgieva said the IMF did not see a food crisis yet, but that could happen if fertilizer delivery was compromised.
