The International Monetary Fund has cautioned that an escalating war involving Iran could trigger an "energy crisis of unprecedented scale" and push the global economy into recession, cutting its 2026 global growth forecast to 3.1% even under its most optimistic scenario. The fund's World Economic Outlook outlines three trajectories: a baseline in which hostilities ease by mid-2026, an "adverse" scenario with oil averaging $100 a barrel that would slow growth to 2.5%, and a "severe" scenario with oil above $110 that would collapse growth to roughly 2% — a threshold breached only four times since 1980, most recently during the Covid-19 pandemic and the 2008 financial crisis. The closure of the Strait of Hormuz (a narrow waterway through which roughly a fifth of the world's oil passes) by a US blockade has already rattled energy markets, and IMF chief economist Pierre-Olivier Gourinchas urged governments to avoid broad subsidies or stimulus spending, warning that untargeted fiscal support risks worsening inflation at a moment when most countries already carry unsustainably high debt levels.
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IMF warns energy crisis from Iran conflict could push world into recession[Updated]
Iran's Foreign Minister Abbas Araghchi announced Friday that the Strait of Hormuz is "completely open" for all commercial vessels for the duration of a newly agreed Israel-Lebanon ceasefire, with President Trump quickly confirming the strait was "completely open and ready for business and full passage" — though he noted the U.S. naval blockade on Iranian oil exports would remain in place until a broader deal is reached. Oil markets responded sharply, with benchmark Brent crude falling roughly 10% to around $90 a barrel — its lowest in a month and well below late March highs near $120 — while global stocks rallied and the 10-year U.S. Treasury yield dropped 7 basis points to 4.23%. Maritime analytics firm Kpler separately told AFP that three Iranian tankers evaded the U.S. naval blockade on Wednesday, moving approximately 5 million barrels of oil out of the Persian Gulf.
The IMF has issued a pointed warning to European governments against repeating the "costly mistakes" of the 2022 Ukraine-era energy crisis, specifically cautioning against fuel tax cuts and price caps as tools to cushion the current energy shock. In a briefing on Europe, the fund called such measures "unwise," noting that untargeted support disproportionately benefits higher-income households, which consume more energy. The IMF also warned that broad, open-ended support schemes suppress incentives for households and businesses to reduce consumption or invest in alternatives and efficiency gains, and stressed that such measures are difficult to unwind once introduced.
The IMF has also raised its global inflation forecast by 0.6 percentage points to 4.4%, driven by surging oil, gas, and fertiliser costs, with Iran facing one of the largest country-level growth revisions of any economy. IMF chief economist Pierre-Olivier Gourinchas said just minutes after releasing the World Economic Outlook that it may already be outdated, adding that with continued energy disruptions and no clear path to ending the conflict, the fund's "adverse scenario" — featuring oil at around $100 a barrel and global growth of 2.5% — looks increasingly likely. The IMF's baseline forecast assumes oil averaging $82 a barrel for 2026, well below Tuesday's benchmark Brent crude price of around $96, underscoring how quickly conditions have outpaced the fund's most optimistic projections.
The aviation industry is emerging as one of the sharpest flashpoints of the fuel crisis, with Qantas delaying a planned share buyback due to volatile fuel costs, Lufthansa CEO Carsten Spohr warning that kerosene will "remain in short supply and therefore more expensive for the rest of the year" and that grounding planes "may be unavoidable" as availability is already critical at some Asian airports, and Virgin Atlantic flagging a looming supply crunch. A two-week ceasefire has provided little relief, with the Strait of Hormuz remaining closed and jet fuel prices having roughly doubled since U.S.-Israeli strikes on Iran began February 28. South Korean low-cost carrier T'way Air is among the first airlines to move to staffing reductions, planning to furlough some cabin crew without pay in May and June.
U.S. wholesale prices surged 0.5% in March from the prior month and 4% year-over-year — the largest annual gain in more than three years — with energy prices alone jumping 8.5%, the Labor Department reported Tuesday. OPEC meanwhile disclosed that its members' crude output fell 27% month-on-month in March to below 21 million barrels a day as traffic through the Strait of Hormuz has been virtually closed since the conflict began in late February. The energy cost spike is complicating the Federal Reserve's position, with some policymakers now weighing rate increases even as President Trump presses for cuts. Australian Treasurer Jim Chalmers is attending the IMF spring meetings in Washington, where he plans to hold bilateral talks with counterparts from key fuel suppliers including South Korea, Singapore, Japan, and China, and said Australians were "paying a hefty price for events on the other side of the world."