IMF chief warns of ‘much worse outcome’ for global economy as Iran war drags on

Kristalina Georgieva warned that prolonged Middle East war could push oil to $125 and worsen global inflation, activating adverse IMF scenarios. Growth may slow sharply, while energy volatility from the Strait of Hormuz keeps markets unstable

New York: International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned that the global economy would face a “much worse outcome” if the Middle East war drags on into 2027, with oil prices hitting around 125 dollars per barrel.

“We are going to see inflation climbing up, and then inevitably, inflation expectations would start de-anchoring,” she said at a conference hosted by the Milken Institute in Washington, D.C., on Monday (local time).

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She noted that current conditions, including a prolonged conflict, oil prices hovering at or above 100 US dollars per barrel, and mounting inflationary pressures, have already activated the IMF’s “adverse scenario,” reports Xinhua news agency.

In April, the IMF issued three scenarios for global GDP growth in 2026 and 2027, namely the main “reference forecast,” a middle “adverse scenario,” and a much worse “severe scenario.” Under the adverse scenario, global growth would slow to 2.5 per cent in 2026, while inflation would rise to 5.4 per cent.

The reference scenario, which assumes a short-lived conflict, projects growth of 3.1 per cent and inflation of 4.4 per cent. “This scenario, with every day that passes, is further and further behind in the rear-view mirror,” Georgieva said. For the severe scenario forecast, global growth would be just 2 per cent, with inflation hitting 5.8 per cent.

Meanwhile, global crude oil prices declined almost 3 per cent on Monday after US President Donald Trump said Washington would take steps to help clear vessels stranded in the Strait of Hormuz, though the lack of a breakthrough in US-Iran talks kept prices above the $100-mark.

International benchmark Brent crude slipped 66 cents or 0.61 per cent to $107.51 per barrel, while US West Texas Intermediate (WTI) fell $2.83 or 2.77 per cent to $99.11 a barrel.