IMF closely monitors Iran war, warns of higher inflation and slower global growth

Speaking to reporters on Thursday (March 19), IMF spokesperson Julie Kozack said the conflict’s economic effect would depend on how long it lasts, how intense it becomes and how far it spreads.

She said the Fund had not received any formal requests for emergency financing, but stood ready to support member countries if needed.

Kozack said IMF officials were already in contact with finance ministers, central bank governors and regional institutions as the war continued to disrupt seaborne shipments of oil and natural gas, driving Brent crude above US$100 a barrel.

The IMF will reflect the impact of the conflict in an updated global economic outlook due in mid-April at the IMF-World Bank spring meetings, she said.

According to Kozack, oil and gas prices have climbed by more than 50% over the past month, lifting Brent above US$100 a barrel.

She added that disruptions to fertiliser shipments, along with transport problems, had also increased the risk of food price rises, which could be substantial depending on the duration and severity of the war.

Nearly three weeks into the conflict, with no clear end in sight, European powers and Japan said on Thursday they would work to steady energy markets and join what they called appropriate efforts to reopen the Gulf’s vital energy chokepoint.

Their comments came after reciprocal strikes on energy facilities sharply intensified the US-Israeli war with Iran.

Kozack also pointed to an IMF rule of thumb showing that a sustained 10% rise in energy prices over about a year would add 40 basis points to global inflation and reduce output by between 0.1% and 0.2%. If oil stays above $100 a barrel for a full year, the effects on inflation and global output would be significant, she said.

She said central banks should watch closely for signs that inflation pressures were spreading beyond energy and assess whether inflation expectations remained firmly anchored.

Financial markets have also responded to the conflict, Kozack said, with share prices falling and bond yields rising across the United States, Britain, Europe and a range of emerging and developing economies.

“Volatility has increased. The US dollar has appreciated, and the currencies of several emerging economies have weakened,” Kozack said.

In the Gulf region, Kozack said the IMF’s preliminary view was that growth in Gulf Cooperation Council countries would weaken, although she did not provide estimates.

She said the extent of the damage would depend heavily on how quickly those countries could restore oil and gas exports.

She added that most GCC economies had sizable policy buffers and had undertaken reforms aimed at improving resilience.

Separately, QatarEnergy’s chief executive and state minister for energy affairs told Reuters on Thursday that Iranian attacks had knocked out 17% of Qatar’s liquefied natural gas export capacity, leading to an estimated $20 billion in lost annual revenue and threatening supplies to both Europe and Asia.

Kozack also said IMF staff were meeting Lebanese authorities to make an initial assessment of how the Iran conflict was affecting the country.

She said the war was worsening Lebanon’s humanitarian crisis, putting further strain on an already fragile macroeconomic situation and damaging infrastructure.

Even so, she said Lebanese authorities had shown commitment to continuing talks on broad reform measures despite the impact of the war.

By contrast, Kozack said the effect on Egypt’s economy had remained contained so far, while praising the country’s response as proactive, timely and well coordinated.

Reuters