WASHINGTON – The International Monetary Fund (IMF) acknowledged growing global economic risks stemming from escalating tensions in the Middle East, with Director of the Communications Department Julie Kozack outlining potential impacts ranging from surging oil prices to disruptions in food supplies during a press briefing Friday.
Kozack stated the closure of the Strait of Hormuz has already cut off roughly 20 percent of the world’s oil and seaborne LNG supplies, and damage to energy infrastructure in the Gulf Region and Iran has disrupted oil and gas production. Oil and gas prices have increased by more than 50 percent over the last month, exceeding $100 a barrel, while fertilizer shipments have also been disrupted.
“Conflicts upend lives and livelihoods, and our hearts do go out to people who are experiencing this,” Kozack said, adding that the IMF is monitoring the situation closely and engaging with member countries.
The IMF identified three primary channels through which these disruptions could affect the global economy: commodity prices, inflation and inflation expectations, and financial conditions. Historically, a 10 percent increase in oil prices, if sustained, could lead to a 40 basis point increase in global headline inflation and a 0.1 to 0.2 percent fall in global output, according to the IMF.
Kozack noted that global stock prices have declined and bond yields have increased across a range of countries, including the U.S., the UK, and Europe, as well as emerging and developing economies. The U.S. Dollar has appreciated, and the currencies of several emerging economies have weakened.
The IMF is particularly focused on the potential impact on vulnerable economies. Kozack said the Gulf Cooperation Council (GCC) countries are expected to see weaker growth and affected fiscal and external balances, though higher energy prices could offset lower production for some. She highlighted that most GCC countries have substantial policy buffers and have undertaken recent reforms to strengthen their economies.
Responding to questions about small states and Caribbean territories heavily dependent on imports, Kozack stated the IMF is monitoring potential spillover effects through commodity prices, particularly energy and food. The impact will vary depending on whether countries are net energy importers or exporters.
Several questioners pressed Kozack on whether the IMF would consider offering Rapid Financing Instruments (RFIs), as it has during previous global shocks. Kozack stated the IMF has not received any formal requests for emergency financing but remains ready to provide support using all available tools. She confirmed the IMF is in discussions with authorities regarding potential impacts and needs.
Regarding Egypt, Kozack noted the recent approval of the Fifth and Sixth Reviews of the country’s program with the IMF, resulting in disbursements of approximately $2.3 billion. She said the Egyptian authorities have taken a proactive response to the conflict, activating a crisis management committee and maintaining fiscal discipline while supporting vulnerable households.
On Lebanon, Kozack acknowledged the conflict is exacerbating the country’s already fragile macroeconomic situation and compounding the humanitarian crisis. IMF staff are currently in Paris with Lebanese authorities to discuss the impact of the conflict and continue discussions on a potential reform program.
Kozack also addressed concerns about Argentina, stating that progress is continuing on key reforms and that the country has weathered the recent shock relatively well, in part due to its status as a net energy exporter. Discussions on the Second Review of Argentina’s program are ongoing.
The IMF plans to publish an updated assessment of the global economic outlook in its World Economic Outlook in April, including scenario analysis to account for the evolving situation in the Middle East. The Managing Director’s Curtain Raiser for the Spring Meetings is scheduled for April 9th at 10 a.m.
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