The International Monetary Fund (IMF) has cautioned that the US-Israel-Iran war may not stay confined to the battlefield, with its economic impact likely to ripple across countries worldwide. The likely fallout? Higher prices and slower growth.
In a blog post, the IMF said the conflict is not just a regional crisis but a global economic shock, hitting countries unevenly. Economies that depend heavily on energy imports, have limited reserves, or weaker fiscal buffers are likely to feel the pressure more sharply than others.
“It is also dimming the outlook for many economies that had only just shown signs of a sustained recovery from previous crises. The shock is global, yet asymmetric. Energy importers are more exposed than exporters, poorer countries more than richer ones, and those with meagre buffers more than those with ample reserves,” the IMF said.
The fallout is already visible. A large share of global energy supplies moves through the Strait of Hormuz – roughly 25 to 30 per cent of oil and about 20 per cent of liquefied natural gas. This has pushed up fuel and input costs, especially for major importers in Asia and Europe.
Countries in Africa and parts of Asia that rely heavily on imported oil are finding it harder to secure supplies, even as prices rise. The IMF warned that low-income nations face a double blow, with higher food and fertiliser costs adding to the strain.
“Parts of the Middle East, Africa, Asia-Pacific, and Latin America face the added strain of higher food and fertiliser prices and tighter financial conditions. Low-income countries are especially at risk of food insecurity; some may need more external support — even as such assistance has been declining,” it warned.
Energy shock, supply chains and markets under strain
The IMF said the duration of the conflict will be crucial. How things unfold will depend a lot on how long the conflict lasts. A brief escalation could send oil and gas prices shooting up before things settle. But if tensions drag on, energy could stay expensive for longer, putting steady pressure on countries that rely on imports.
In Asia’s manufacturing hubs, higher fuel and electricity costs are pushing up production expenses and squeezing household spending. Some economies are already seeing currency pressures due to balance-of-payments stress.
In Europe, the situation is reviving concerns similar to the 2021–22 gas crisis. Some economies are more exposed than others. Italy and the United Kingdom, which depend heavily on gas for power, are particularly vulnerable. In contrast, France and Spain are relatively better placed, thanks to stronger nuclear and renewable energy systems.
The conflict is also disrupting global trade beyond energy. Shipping routes are being altered, raising freight and insurance costs and delaying deliveries. Air traffic disruptions around Gulf hubs are affecting tourism and adding to trade complications.
The IMF highlighted that the Gulf region plays a key role in supplying helium, which is critical for industries ranging from semiconductors to medical imaging. Meanwhile, Indonesia, a major nickel producer, could face shortages of sulfur needed for processing, affecting electric-vehicle supply chains.
Eastern African economies, which depend on trade and remittances linked to Gulf countries, are also facing weaker demand, logistical hurdles and reduced inflows.
Financial markets have reacted as well. Global equities have fallen, bond yields have risen, and volatility has picked up across both advanced and emerging economies. While the sell-off has been contained so far, tighter financial conditions are already being felt worldwide.
The IMF said policymakers must respond carefully to manage the situation.
“To manage the shock and maintain resilience, it is, therefore, more important than ever that countries adopt appropriate policies. Measures need to be carefully calibrated to country-specific needs. Countries with limited reserves and little fiscal room to manoeuvre should be especially cautious,” it said.
IMF Managing Director Kristalina Georgieva added: “In an uncertain world, more countries are needing more of our support. We are there for them.”