- War has reduced global oil supply by 13%, IMF chief says.
- ME conflict to dominate next week’s IMF, WB meetings.
- Barring war, the IMF had expected little upgrade in the outlook.
The war in the Middle East will lead to higher inflation and slower global growth, the head of the International Monetary Fund (IMF) said Reuters on Monday, ahead of a forecast on the world economy that the global lender has planned for next week.
The war has triggered the worst-ever disruption in global energy supplies, with millions of barrels of oil production shut down due to Iran’s effective blockade of the Strait of Hormuz, which is crucial for transporting a fifth of the world’s oil and gas.
Even if the conflict is resolved quickly, the IMF is set to cut its forecast for economic growth and raise its outlook for inflation, said Kristalina Georgieva, managing director of the IMF.
The war is expected to dominate discussions among finance officials from around the world at next week’s spring meetings of the IMF and the World Bank in Washington.
The fund is expected to publish a number of scenarios in its upcoming World Economic Outlook, which is expected to be published on April 14.
It signaled a possible downgrade in a March 30 blog post, citing the asymmetric shocks of war and tighter economic conditions. Without the war, Georgieva said the IMF had expected a slight upgrade in its projection for 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 spring meetings in a speech on Thursday. World Bank President Ajay Banga will present his view at an Atlantic Council event on Tuesday.
“We are in a world of high uncertainty,” the IMF chief said, citing geopolitical tensions, technological advances, climate shocks and demographic changes. “All of this means that after we get over this shock, we have to keep our eyes open for what’s next.”
The war has shrunk global oil supplies by 13%, Georgieva said, with the impact rippling through oil and gas shipments and into related supply chains such as helium and fertilizers.
Even a quick end to hostilities and a fairly rapid recovery would result in a “relatively small” downward revision of the growth forecast and an upward revision of the inflation forecast, she said. If the war is protracted, the effect on inflation and growth will be greater.
Poor countries will be hit harder
Poor, vulnerable countries without energy reserves will be hardest hit, Georgieva added, noting that many countries had little or no financial leeway to help their populations cope with the price increases caused by the war, which in turn also raised the prospect of social unrest.
Georgieva said some countries had already asked for funding assistance, but did not name them. She said the IMF could expand some existing loan programs to meet countries’ needs. 85 percent of the IMF’s members are energy importers.
Broad energy subsidies were not the answer, she said, urging policymakers to avoid public payments that could further stoke inflationary pressures.
The impact has been asymmetric, hitting the energy-importing countries the hardest, but even energy exporters such as Qatar are feeling the effect of Iranian attacks against 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 has reported that 72 energy facilities have been damaged in the war, with a third suffering significant damage.
“Even if the war stops today, there would be a lasting negative impact on the rest of the world,” she said.
Food safety a concern
After the US and Israel attacked on February 28, Iran effectively closed the Strait of Hormuz, sending the price of crude oil and liquid natural gas soaring. The international benchmark for Brent crude fell near $110 on Monday, with cash benchmarks fetched to the Middle East at a significant premium to that price.
The heads of the IMF, IEA and World Bank said last week they would form a coordinated effort to assess the war’s energy and economic effects.
Georgieva said the IMF is also engaging with the UN’s World Food Program and the Food and Agriculture Organization on food security.
The World Food Program said in mid-March that millions of people will face acute hunger if the war continues into June. Georgieva said the IMF did not see a food crisis yet, but it could happen if the supply of fertilizer deteriorated.
