By Ochiaka Ugwu
International Monetary Fund (IMF) has warned that global economy risks recession if the US-Israel/Iran war continues with high energy prices persisting.
The global monetary institution in its World Economic Outlook report, said in a worst-case scenario – where oil, gas and food prices spike and remain high this year and next – global growth could fall below 2% in 2026.
According to the report obtained in IMF website, “This would mean a close call for a global recession which has happened only four times since 1980,” it said, the most recent being during the Covid pandemic.
Recall that energy prices have gone up since the start of war over six weeks ago after the key Strait of Hormuz shipping route effectively closed and peace talks between the US and Iran failed.
The report noted: “Once again, the global economy is threatened with being thrown off course – this time by the outbreak of war in the Middle East at the end of February 2026.”
It said the most severe conditions that could lead to a worldwide slowdown would include oil prices reaching an average $110 per barrel this year and hitting $125 in 2027.
Based on these assumptions, the IMF said inflation could reach as much as 6% next year. This could force central banks to increase interest rates to slow the pace of price rises.
Oil has risen close to $120 during the Iran conflict but has since fallen back and on Tuesday, a barrel of crude cost $98.85.
Again, the IMF pointed out that the risk of recession would only increase if severe conditions continued over two years.
It said that if the conflict is resolved in the next few weeks and if energy production and exports from the Middle East begin to normalise by the middle of this year, global growth would ease to 3.1% for 2026.
That is below an earlier forecast of 3.3%. It also left its prediction for global growth next year unchanged at 3.2%.
Of the world’s advanced economies, the IMF has forecast that the UK will be the hardest hit by the energy shock from the Iran war.
It cut its estimate for UK growth this year to 0.8%, from a previous prediction of 1.3%. However, it expects the UK to then recover with economic expansion of 1.3%.
Oil exporting nations in the Gulf are likely to see a sharp slowdown in economic growth or even a contraction this year, according to IMF forecasts.
It estimates that Iran’s economy will shrink by 6.1% this year. However, it forecasts a rebound of 3.2% in 2027 – providing the war ends in the next few weeks.
The IMF forecasts that Qatar’s economy will contract by 8.6% in 2026, before bouncing back with 8.6% growth next year.
It also predicts that Iran’s neighbour, Iraq, will take an economic hit this year from the war, with a slowdown of 6.8%. But it is expected to recover to 11.3% growth in 2027.
A country’s economic resilience will depend on a number of factors, the IMF said, including the damage to energy infrastructure, dependence on the Strait of Hormuz and availability of alternative export routes.
The IMF said most Middle East oil exporters are forecast for an upturn next year “based on the assumption that energy production and transportation are normalized over the next few months”.
But it cautioned that this assumption “may need to be revised if the duration of the conflict extends and the degree of damage suffered gets reassessed”.
One country that has benefited from the surge in oil prices is Russia, according to IMF forecasts.
The Russian economy is expected to grow by 1.1% this year and next, ahead of previous predictions of 0.8% and 1% respectively.
Russia had been hit by a series of sanctions after it launched a full-scale invasion of Ukraine more than four years ago.
In March, US President Donald Trump removed restrictions on exports of Russian oil as global prices soared.
He also temporarily lifted sanctions on 140 million barrels of Iranian oil for 30 days.
Trump has since announced a US blockade of Iranian ports to stop exports.
The IMF urges central banks to maintain tight monetary policies to combat stubborn inflation, but to watch for financial stability risks.
It also emphasizes the need for structural reforms to boost medium-term growth, such as labor market improvements and embracing technological advancements
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