THE International Monetary Fund (IMF) has warned that escalating and prolonged conflict in the Middle East could push the world economy into a far more severe inflationary crisis, especially if crude oil prices surge to around US$125 per barrel by 2027.
Managing Director Kristalina Georgieva said the persistence of the conflict means the IMF’s earlier baseline scenario for global growth is increasingly outdated and no longer realistic.
“This scenario, with every passing day, is further and further in the rear-view mirror,” she said.
She explained that the IMF’s earlier baseline forecast had assumed a short-lived conflict, with global growth slowing only modestly to 3.1 per cent and inflation easing to around 4.4 per cent.
However, she warned that ongoing hostilities, sustained oil prices above US$100, and rising inflation pressures have already pushed conditions towards a more adverse trajectory.
“If this continues into 2027 and oil is around US$125, then we need to expect a much worse outcome. We will see inflation going up and eventually inflation expectations will become unanchored,” Reuters reported her saying at a Milken Institute conference.
Georgieva said that while long-term inflation expectations remain broadly stable and financial conditions have not yet tightened significantly, this balance could quickly deteriorate if the conflict persists.
Last month, the IMF outlined three global growth scenarios for 2026 and 2027 amid heightened geopolitical uncertainty: a baseline outlook, a mid-range downside scenario, and a severe downside scenario.
Under the adverse case, global growth would slow to 2.5 per cent in 2026, with inflation reaching 5.4 per cent. In the most severe scenario, growth could fall to 2 per cent, while inflation rises to 5.8 per cent.
Mike Wirth, chairman and chief executive of Chevron, said during the same panel discussion that a physical shortage of oil supply could emerge globally if the Strait of Hormuz were closed. The waterway has historically carried around 20 per cent of global crude oil flows.
He warned that economic contraction would likely begin in Asia as demand adjusts to constrained supply if the strait remains shut due to the ongoing conflict involving the United States, Israel and Iran.
Georgieva also said the IMF is closely monitoring the broader spillover effects on global supply chains, noting that fertiliser prices have already increased by 30 to 40 per cent, which could push food prices up by three to six per cent.
“What I want to emphasise is that this is very serious,” she said, warning that some policymakers still appear to be assuming the crisis will end within months and are pursuing policies that may inadvertently sustain demand for oil.
“Do not add fuel to the fire. Everybody here knows that if supply goes down, demand also needs to come down,” she said. - May 5, 2026
