IMF warns Middle East conflict could pressure global economy and energy markets

The ongoing Middle East conflict’s effect on the global economy will depend heavily on how long it lasts and the extent of damage to infrastructure and industries in the region, particularly energy, the International Monetary Fund’s (IMF) First Deputy Managing Director Dan Katz said on Tuesday.

Speaking at the Milken Institute Future of Finance conference in Washington, Katz said prolonged uncertainty and sustained energy price shocks could prompt central banks to respond cautiously as the situation develops. He warned the conflict could significantly impact inflation, growth, and other economic metrics, though it was still early to draw firm conclusions.

Before the U.S. and Israeli airstrikes on Iran and the subsequent regional counterattacks, the IMF had projected solid global GDP growth of 3.3% in 2026, supported by ongoing AI investment and expected productivity gains.

Katz noted that the economic fallout would depend on further geopolitical developments and the degree of disruption to the region’s infrastructure and key sectors, including energy, tourism, and air travel. “Physical damage to production facilities and critical industries, particularly energy, is what everyone will be focused on,” he said.

The IMF has been monitoring trade and economic disruptions, surging energy prices, and financial market volatility triggered by the conflict. Brent crude rose to $83 per barrel on Tuesday, up 15% from Friday, as Iran vowed attacks on ships passing through the Strait of Hormuz.

Katz said central banks are likely to “look through” temporary energy price spikes due to their focus on core inflation but could act if sustained shocks destabilize inflation expectations. He drew parallels with the post-COVID inflation surge of 2022, noting the lessons of energy price pass-through from the Russia-Ukraine crisis could inform current monetary policy decisions.