IMF on the Middle East crisis: Poor countries are the most affected, some already seeking financial aid

(Patria) - The war in the Middle East will lead to higher inflation and slower global growth, the head of the International Monetary Fund (IMF), Kristalina Georgieva, told Reuters last night ahead of the planned release of the world economic forecast.

The war has caused the biggest disruption to global energy supply ever after Iran's blockade of the Strait of Hormuz, a key route for a fifth of the world's oil and gas, halted millions of barrels of oil production. Even if the conflict is resolved quickly, the IMF will lower its growth forecast and raise its inflation outlook, said IMF Managing Director Kristalina Georgieva.

The war is expected to dominate discussions among financial officials from around the world at the spring meetings of the IMF and World Bank in Washington next week. The Fund is due to release a series of scenarios on April 14, and had already signaled possible downward revisions to forecasts in late March, citing the asymmetric shock of the war and tighter financial conditions.

Georgieva said that without the war, the IMF had expected a slight improvement in its global growth projection of 3.3 percent in 2026 and 3.2 percent in 2027, as economies continue to recover from the pandemic.

"Instead, all paths now lead to higher prices and slower growth. We are in a world of heightened uncertainty," Georgieva said, citing geopolitical tensions, technological advances, climate shocks and demographic changes.

That means that after we recover from this shock, she added, we must keep our eyes open for the next one.

Georgieva also stated that the war has reduced global oil supply by 13 percent, and the effect is spilling over into oil and gas deliveries and related supply chains such as helium and fertilizers.

Even a quick end to hostilities and a rapid recovery would result in a "relatively small" downward revision to the growth forecast and an increase in the inflation forecast, she added, and if the war drags on, the impact on inflation and growth will be greater.

Poor, vulnerable countries without energy reserves will be hardest hit, Georgieva added, noting that many countries have very little or no fiscal space to help their populations cope with the price increases caused by the war, which in turn increases the risk of social unrest.

Georgieva stated that some countries have already requested financial assistance, but did not name them. She said the IMF could expand some existing lending programs to meet countries' needs, and that as many as 85 percent of IMF members are energy importers.

Broad energy subsidies are not the solution, she added, calling on policymakers to avoid government payouts that could further fuel inflationary pressures.

The impact is asymmetric, hitting energy-importing countries hardest, but even energy exporters like Qatar are feeling the consequences of Iranian attacks on their production facilities.

Due to the damage, Qatar expects it will take three to five years to restore 17 percent of its natural gas production, Georgieva pointed out, while the International Energy Agency reported that 72 energy facilities have been damaged in the war, a third of which have suffered significant damage.

"Even if the war were to stop today, there would still be a negative impact on the rest of the world," she warned.

Among other things, the World Food Programme (WFP) said in mid-March that millions of people will face acute hunger if the war continues until June. Georgieva said the IMF does not currently see a food crisis, but that one could occur if fertilizer supplies are disrupted.