IMF Warns Iran War Will Slow Global Growth and Fuel Inflation Risks

By Al Mayadeen English

Source: New York Times

The IMF warns that the war in Iran and the wider war in West Asia will slow global economic growth, drive oil prices higher, and risk renewed inflation pressures, even if a fragile ceasefire holds.

The head of the International Monetary Fund (IMF), Kristalina Georgieva, warned that the ongoing war on Iran and the wider West Asia will significantly weigh on global economic growth this year, driven by damage to energy infrastructure and disruptions to supply chains.

Speaking ahead of next week’s spring meetings of the IMF and the World Bank, Georgieva said that even in the most optimistic scenario, the global economy will not return to pre-war conditions. “Even in a best case, there will be no neat and clean return to the status quo ante,” she said, adding that growth will be slower even if a peace agreement proves durable.

The IMF noted that a fragile two-week truce agreed between the United States and Iran could help limit some of the economic damage. However, Georgieva stressed that the broader consequences of the war are already embedded in global markets.

The fund’s last projections, issued in October, had already anticipated a slowdown in global growth to 3.1% this year, down from 3.2% in 2025. Georgieva said those forecasts are now likely to be revised downward due to the war’s impact on energy markets.

Energy shocks push inflation higher

The war has driven oil prices above $100 per barrel and pushed gasoline prices in the United States above $4 per gallon. The IMF warned that renewed energy shocks could trigger another wave of inflation, forcing central banks to consider tighter monetary policy. "Higher prices for key inputs feed into many consumer goods, lifting inflation", Georgieva said.

She added that if inflation expectations become unanchored, central banks may need to respond with interest rate hikes.

Minutes from the latest meeting of the Federal Reserve showed policymakers remain cautious, closely monitoring the war’s inflationary impact while keeping interest rates steady.

Georgieva also warned against overly aggressive monetary tightening, saying premature action could harm growth. “Concentrate on conditions,” she said. “Because if you tighten prematurely and unnecessarily, you’re throwing cold water on growth.”

Energy security concerns rise globally

The IMF said the war underscores the importance of energy diversification and efficiency as global economies face prolonged instability.

While the IMF reduced emphasis on its green transition agenda since the return of US President Donald Trump, Georgieva stressed that energy shocks highlight the need for long-term resilience in global energy systems.

The IMF will release updated economic projections next Tuesday, including multiple scenarios based on possible outcomes of the war.

Fuel crisis now worse than 1973, 1979, 2002 combined, IEA chief warns

The current oil and gas crisis triggered by the US-Israeli aggression on Iran and subsequently Iran's closure of the Strait of Hormuz is "more serious than the ones in 1973, 1979, and 2002 together," the head of the International Energy Agency has warned earlier today.

Speaking with French newspaper Le Figaro, IEA Executive Director Fatih Birol said the world has "never experienced a disruption to energy supply of such magnitude."

The Strait of Hormuz, through which approximately 20 percent of the world's oil flows, has been effectively closed since the United States and "Israel" launched their war on Iran on February 28. Iran has maintained that the Strait remains open to non-hostile vessels that coordinate with Tehran, while ships linked to the aggressors and their allies remain blocked.

Birol said the countries most at risk were developing nations whose populations will be hard-hit by higher oil and gas prices, rising food prices, and the general ramping up of inflation across global economies.

The warning comes as IEA member countries agreed last month to release part of their strategic reserves amid the blockade. Birol said some of this had already been released, but added that the process was still underway.