- War has reduced global oil supply by 13%, says IMF chief.
- The conflict between EM will dominate the IMF and WB meetings next week.
- Barring a war, the IMF expected little improvement in the outlook.
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 for the global economy scheduled by the global lender for next week.
The war has triggered the worst disruption to global energy supplies, with millions of barrels of oil production paralyzed 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 resolved quickly, the IMF will lower its economic growth forecast and improve its inflation outlook, said Kristalina Georgieva, managing director of the IMF.
The war is expected to dominate discussions among finance officials around the world at next week’s spring meetings of the IMF and World Bank in Washington.
The Fund is expected to release a series of scenarios in its upcoming World Economic Outlook report, due out on April 14.
It flagged a possible downgrade in a March 30 blog post, citing the asymmetric impact of war and tighter financial conditions. Without the war, Georgieva said the IMF had expected a small improvement in its global growth projection 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 on Thursday. World Bank President Ajay Banga will present his views 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 recover from this shock, we need to keep our eyes open for the next one.”
The war has reduced the world’s oil supply by 13%, Georgieva said, and the impact has spread to oil and gas shipments and related supply chains, such as helium and fertilizers.
Even a quick end to hostilities and a fairly rapid recovery will result in a “relatively small” downward revision to the growth forecast and an upward revision to the inflation forecast, he said. If the war is prolonged, the effect on inflation and growth will be greater.
Poor countries will be hardest hit
Poor and vulnerable countries without energy reserves will be hardest hit, Georgieva added, noting that many countries had little or no fiscal space to help their populations weather the price increases caused by the war, which in turn also raised the prospects of social unrest.
Georgieva said some countries had already asked for financial help, but she did not name them. He said the IMF could increase some existing lending programs to meet countries’ needs. Eighty-five percent of IMF members are energy importers.
Broad energy subsidies were not the answer, he said, and urged policymakers to avoid government payments that could further inflame inflationary pressures.
The impact has been asymmetrical and has hit energy-importing countries hardest, but even energy exporters like Qatar are feeling the effect of Iranian attacks on their production facilities.
Qatar expects it will take three to five years to restore 17% of its natural gas production due to damage, Georgieva said, while the International Energy Agency has reported that 72 energy facilities have been damaged in the war, a third of which have suffered major damage.
“Even if the war were to stop today, there would be a lingering negative impact for the rest of the world,” he said.
Food safety is a concern
After the US-Israeli attack on February 28, Iran effectively closed the Strait of Hormuz, driving up the price of crude oil and liquefied natural gas sharply. The international benchmark price for Brent crude oil stood near $110 on Monday, and cash benchmarks from the Middle East are at a substantial 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 energy and economic effects of the war.
Georgieva said the IMF was also collaborating 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 will face acute hunger if the war continues into June. Georgieva said the IMF does not see a food crisis yet, but that could happen if fertilizer deliveries are affected.
