The simmering conflict that erupted after U.S. and Israeli attacks on Iran in late February has upended years of gradual economic recovery, casting a sudden, dark shadow over global growth prospects, the International Monetary Fund (IMF) has warned in its latest semiannual World Economic Outlook. The institution has cut nearly all of its 2026 growth projections, stressing that prolonged conflict in the energy-rich Middle East could push the global economy into a full recession, a scenario not seen since the immediate aftermath of the COVID-19 pandemic.
Prior to the outbreak of hostilities, the global economy had been on a steady upward trajectory. The IMF notes that strengthening growth was fueled by a booming global tech sector, easing trade policy frictions between major economies, targeted fiscal stimulus in multiple large markets, and generally accommodative global financial conditions. That momentum has now been completely derailed by the conflict, according to IMF Chief Economist Pierre-Olivier Gourinchas.
“The global outlook has abruptly darkened following the outbreak of war,” Gourinchas stated in the report. He highlighted the unique strategic importance of the Middle East to global energy security, warning that any prolonged closure of the Strait of Hormuz or widespread damage to regional oil and gas production infrastructure could spark an energy crisis of a scale never seen before in modern economic history.
The Strait of Hormuz, a narrow shipping lane that narrows to just 33 kilometers at its thinnest point between Oman’s Musandam Peninsula and Iran, is widely recognized as the world’s most critical energy chokepoint. Roughly 20% of total global crude oil production and one-third of the world’s liquefied natural gas (LNG) supplies pass through the waterway daily, making any disruption to traffic there a major shock to global energy markets.
In its baseline projection for a short-lived conflict, the IMF now forecasts global gross domestic product (GDP) will grow by just 3.1% in 2026. That marks a 0.3 percentage point downgrade from the 3.4% growth prediction the institution released just three months ago, before the war began.
Growth downgrades have hit every corner of the global economy, with some regions facing far steeper cuts than others. Among G7 advanced economies, the United Kingdom saw the sharpest downward revision, with its 2026 growth forecast cut by half a percentage point to just 0.8%. The U.S. saw a more modest 0.1 percentage point cut, bringing its projected growth to 2.3% for the year. Emerging market economies are also bracing for significant headwinds: sub-Saharan Africa’s growth forecast was lowered by 0.3 percentage points to 4.3%, while the Middle East and North Africa region suffered the steepest overall downgrade of 2.8 percentage points, dropping to just 1.1% growth. That sharp cut reflects direct damage to regional infrastructure and risks of prolonged disruption to the Strait of Hormuz.
Inflation projections have also been revised sharply upward as energy prices soar in the wake of the conflict. The IMF now projects global inflation will hit 4.4% in 2026, up significantly from its earlier forecast of 3.7%. Since the conflict began, global crude oil prices have surged above $100 per barrel, while natural gas prices have jumped more than 80% compared to pre-war levels.
The IMF has mapped a range of possible outcomes depending on how the conflict unfolds, from a relatively mild best-case scenario to a catastrophic worst-case scenario. In the most severe outcome, a protracted, long-running war would drag global growth down to just 2% and push global inflation to 6%. The IMF notes that global growth has fallen below the 2% threshold only four times since 1980, with the most recent instances being the 2008 global financial crisis and the 2020 COVID-19 pandemic – events widely classified as global recessions.
Even the most optimistic scenario, in which the war ends quickly and the Strait of Hormuz returns to full operational capacity immediately, would still deliver a major shock to the global economy. Under this best-case outcome, the IMF still projects global oil prices will rise by 21.4% in 2026, while overall global energy commodity prices – which were previously forecast to fall this year – will instead rise by 19%.
Gourinchas explained that this jump in commodity prices represents a classic negative supply shock that will ripple through every sector of the global economy. “Raising the cost of all energy-intensive goods and services – including fertilisers, chemicals, food, transportation, and heating – disrupting supply chains, feeding into headline inflation, and reducing purchasing power,” he said of the impact.
One notable outlier in the revised forecasts is Russia, which the IMF identifies as the biggest relative beneficiary of the conflict. The institution now projects Russia’s economy will grow by 1.1% in 2026, which is 0.3 percentage points higher than its previous forecast, and slightly up from the 1% growth Russia recorded in 2025. The IMF attributes this upgrade to higher global oil prices boosting Russia’s export revenues, alongside temporary U.S. sanctions relief for some Russian oil shipments that has allowed Moscow to expand its market share.
This report was originally covered by Middle East Eye, an independent publication specializing in unrivaled reporting and analysis on the Middle East, North Africa, and broader global affairs. For information on republishing this content and associated fees, interested parties can contact the organization via their official website.