The global economy is facing a period of stagflation, with the war in Iran set to drive prices higher and growth lower, the head of the International Monetary Fund said Monday.
The conflict has already delivered a major shock to energy markets by disrupting the Strait of Hormuz, a vital channel for global trade. The IMF is now preparing to cut its global growth forecasts, warning that developing countries will be hit hardest.
"All roads now lead to higher prices and slower growth," IMF Managing Director Kristalina Georgieva told Reuters. The institution had previously expected to upgrade its outlook for global growth to 3.3% in 2026 and 3.2% in 2027.
The U.S. and Israeli attack on Iran six weeks ago triggered a 13% reduction in global oil supply as the effective closure of the Strait of Hormuz brought marine traffic to a near standstill. The channel handled about 20% of the world's oil and gas transit in 2025. While shipping has slowly resumed, volumes remain a fraction of pre-war levels.
The dual threat of rising inflation and slowing growth is reviving fears of "stagflation," a toxic economic mix that erodes purchasing power and corporate profits. The war and its economic fallout are expected to be the main topic of discussion at the spring meetings of the World Bank and the IMF next week.
The disruption to energy supplies is the most severe on record, with shockwaves spreading to related industries. The war has damaged 72 energy facilities, with one-third suffering significant damage, according to the International Energy Agency. Qatar, a major energy exporter, expects it will take three to five years to restore 17% of its natural gas production due to damage from Iranian strikes.
The impact is also being felt in supply chains for helium and fertilizers, raising concerns about food security. The United Nations' World Food Programme warned in March that millions could face acute hunger if the war continues into June. While the IMF does not yet see a food crisis, Georgieva said one could materialize if fertilizer deliveries are impaired.
The economic shock will disproportionately affect poorer, vulnerable countries that lack the fiscal space to absorb higher prices. Georgieva said some countries have already requested financial assistance from the IMF, which is prepared to augment existing lending programs. About 85% of the IMF's members are energy importers.
"We are in a world of elevated uncertainty," Georgieva said, citing geopolitical tensions, technological advancements, climate shocks, and demographic shifts. "All of this means that after we recover from this shock, we need to keep our eyes open for the next one."
This article is for informational purposes only and does not constitute investment advice.
