“A longer or broader conflict, worsening geopolitical fragmentation, a reassessment of expectations surrounding artificial‑intelligence‑driven productivity, or renewed trade tensions could significantly weaken growth and destabilize financial markets,” the IMF said in a new report on Tuesday.
If oil prices on average hover around $100 a barrel, as they have in recent weeks due to war-driven disruptions, the IMF forecasts global growth to fall to 2.5% this year. In January, the IMF forecasted oil prices to average $62 a barrel this year.
In all three scenarios, headline inflation is expected to rise. In the most severe, global inflation is expected to top 6%.
“Now, war in the Middle East has halted this momentum. The closing of the Strait of Hormuz and serious damage to critical energy facilities in the Middle East raised the prospect of a major energy crisis, should a durable solution not be found soon,” Gourinchas said.
Although the U.S. and Iran agreed to a two-week cease-fire, temporarily halting military attacks, traffic through the Strait of Hormuz has continued to be restricted. After marathon talks aimed at a more definitive end to the war failed over the weekend, President Donald Trump announced a U.S. naval blockade of Iranian ports, a move that Iranian officials have said could be considered a cease-fire violation. At the same time, the Strait of Hormuz has remained a sticking point in negotiations. Iran has sought to institutionalize its control of the strait possibly through a toll system after the conflict ends. Trump, for his part, has suggested the U.S. could charge its own fees for transit through the strait.
The IMF also reduced its growth outlook for the U.S. by 0.1 percentage point from its January forecast to 2.3%. Americans have already seen higher prices at the pump due to war-driven disruptions. Investors have also been rattled, with markets whipsawed by oil shocks and geopolitical uncertainty.
Emerging markets are likely to be disproportionately affected by energy shocks and a tougher global funding environment, according to the IMF. These economies tend to have greater exposure to supply disruptions as they rely heavily on energy imports and have fewer economic buffers to absorb such shocks.
Tighter financial conditions could also lead to lower demand while firms may lay off workers or slow hiring, the IMF warned.
India, which imports most of its crude oil and liquefied petroleum gas, has also been hit hard by supply disruptions. The country also depends on imported natural gas feedstocks for fertilizer production, critical for its agriculture sector, and on shipping routes through the Strait of Hormuz for its exports. Still, thanks in part to robust domestic demand and public investment, India is expected to remain one of the world’s fastest growing major economies, with the IMF projecting growth of around 6.5%, a slight upgrade from its January forecast.
Economic prospects in the Middle East and Central Asia have been hit particularly hard, as war-driven disruptions to key energy and commodity exports alongside declines in sectors like tourism drag 2026 growth down to 1.9%, a two-percentage-point downgrade. Several economies are projected to contract, including Iran, Qatar, Iraq, Kuwait, and Bahrain. If the conflict ends sooner rather than later, and energy production and shipping are normalized, growth for the region could rebound next year, according to the IMF.And as Treasury Secretary Scott Bessent suggested on Tuesday that Trump’s tariffs could be reinstated as early as July, the possibility of renewed trade tensions could inject fresh volatility into markets, offering little in the way of relief to the world.
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