IMF Warns Middle East Conflict Will Lead to Higher Prices and Slower Global Growth
The International Monetary Fund has issued a stark warning that the ongoing conflict in the Middle East threatens to throttle the flow of oil, gas, and fertiliser from the Gulf, leading to higher prices and slower growth worldwide. In a detailed analysis, the Washington-based fund emphasized that all continents will be affected, with rising energy and food costs harming economic growth this year and potentially leaving lasting scars on the global economy.
Impact on Global Markets and Households
The IMF's message comes amid heightened tensions, including recent threats from Donald Trump targeting Iran's energy infrastructure. The fund's blogpost, authored by key department heads including chief economist Pierre-Olivier Gourinchas, highlights that governments with high borrowing levels will have limited funds to cushion the crisis's worst effects. While some net exporters like the US may benefit from higher fossil fuel prices, the overall rise in petrol, diesel, and food bills will harm living standards globally.
Businesses are forecast to face pressure to raise prices, which could force central banks to increase interest rates to combat inflation. The IMF noted that a short conflict might cause oil and gas prices to soar before markets adjust, whereas a prolonged one could keep energy expensive and strain import-dependent countries. Alternatively, the world might face lingering tensions, costly energy, and persistent inflation, leading to ongoing uncertainty and geopolitical risk.
Specific Economic Projections and Regional Vulnerabilities
About a third of global fertiliser production travels through the Strait of Hormuz, pushing up prices. According to UN Food and Agriculture Organisation projections, global prices could average 15% to 20% higher in the first half of 2026 if the crisis persists. Natural gas prices in the UK have more than doubled since last December to about £140 a therm, while Brent crude oil, which cost around $60 before the conflict, hit over $116 recently before settling at $112.
In Europe, forecasts for sharp rises in gas and electricity costs next winter are forcing governments to consider higher subsidies and welfare payments for affected households. The IMF pointed out that this shock revives memories of the 2021–22 gas crisis, with countries like Italy and the UK especially exposed due to their reliance on gas-fired power. In contrast, France and Spain are relatively protected by their greater nuclear and renewable energy capacity.
The IMF concluded that much depends on the conflict's duration, spread, and damage to infrastructure and supply chains, historically linking sustained oil-price spikes to higher inflation and lower growth.
