Iran crisis: A war premium the world economy can't afford
The escalating conflict involving Iran is causing a macroeconomic shock that may harm the global economy's fragile recovery. The International Monetary Fund warns of lasting scars on growth, inflation, and public finances.
The International Monetary Fund has warned that the escalating conflict involving Iran could leave lasting scars on the global economy. Even a contained conflict could lead to a 19% rise in energy commodity prices, resulting in global growth of 3.1% in 2026 and elevated inflation of 4.4%. In an adverse scenario, global growth could slip to 2.5%, with inflation climbing to 5.4%. A severe escalation could push growth down to 2%, near-recession conditions, and inflation above 6%, raising the spectre of stagflation. Oil markets have reacted sharply, with supply concerns intensifying amid fears of disruptions in critical transit routes and a sharp fall in Iranian exports. Large energy importers like India are already feeling the impact, with India's crude basket surging 64% in one month.
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