Middle East war pushes world economy to the edge of recession, IMF warns
The International Monetary Fund (IMF) has revised its global growth forecast for this year downward due to the ongoing war in the Middle East. Inflation is also expected to rise as a consequence of the conflict, according to its latest World Economic Outlook report.
Given the high level of uncertainty surrounding the outcome of the US and Israel’s war with Iran, the IMF has outlined three scenarios. In the most optimistic case, where the conflict remains short-lived and energy prices rise only moderately and temporarily, global growth is projected at 3.1 per cent. Inflation would increase to 4.4 per cent in 2026 before easing to 3.7 per cent in 2027.
In the worst-case scenario, global growth would fall below 2 per cent, the threshold at which the IMF considers a global recession to occur. This has happened only four times since 1980, most recently during the Covid-19 pandemic. Under this scenario, inflation would reach 5.8 per cent this year and rise further to 6.1 per cent in 2027.
The regions most severely affected would be the Middle East, North Africa and Central Asia. Europe would also face a significant economic impact. By contrast, the United States would emerge relatively unscathed in terms of economic growth.
Concerns over jet fuel supply
In normal circumstances, around 20 per cent of global oil trade passes through the strait, which Iran has blocked since late February. The blockade is not only weighing on the global economy, but could also endanger aviation fuel supplies if the war does not end "in the near future", a European Commission spokeswoman said on Tuesday.
The spokeswoman stressed that, for now, the supply of crude oil to European refineries remains stable and there is no need to release strategic reserves. Refineries currently cover around 70 per cent of European kerosene consumption, with the remainder imported.
However, even if the Strait of Hormuz reopens, the aviation sector is likely to face difficulties securing kerosene supplies for months, according to Willie Walsh, director general of the International Air Transport Association (IATA). He expects jet fuel to remain more expensive than before the Iran conflict, adding that "This means higher ticket prices. That is inevitable."
The Commission is due to present a plan next week to address the energy crisis. The spokeswoman declined to say whether the package would include specific measures for the aviation sector.
PHOTO © Kent Nishimura / AFP
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