A prolonged war between the United States and Iran into next year, combined with oil prices stuck at around $125 per barrel, could push many countries outside of the U.S. and China into recession, the International Monetary Fund (IMF) warned. Asia, heavily dependent on energy imports, is expected to bear the brunt of the shock.
IMF Managing Director Kristalina Georgieva made the remarks Sunday at the Milken Global Conference, hosted by the U.S. economic think tank Milken Institute in Los Angeles. "If the war drags on, prices will soar and supply chains will also be affected," she said.
Georgieva said the baseline scenario in the IMF's World Economic Outlook released last month would inevitably need to be revised. At the time, the IMF had projected global gross domestic product (GDP) growth to slow to 3.1 percent this year, with inflation at 4.4 percent. But with the fallout from the Iran war likely to persist, that outlook is "no longer valid," she said.
The IMF projects that if the war's impact continues throughout the year, global growth could fall to 2.5 percent while inflation could surge to 5.4 percent. Surging energy prices would push up overall transportation and production costs, while supply chain instability would add further strain on the global economy, according to the analysis.
"If this situation continues into next year, the U.S. and China may be able to weather it, but many countries will fall into deep economic recession," Georgieva warned. "In particular, Asia is most likely to be the first to see economic contraction."
Mike Wirth, CEO of U.S. oil company Chevron, who also attended the event, said, "Tensions surrounding the Strait of Hormuz have already pushed out optimism." He added, "The best-case scenario for the Strait of Hormuz was already scrapped weeks ago. Signs of economic damage are already visible in Asia, and Europe appears set to follow."
The Strait of Hormuz is a critical maritime route for Middle Eastern crude oil and liquefied natural gas (LNG). With the U.S. and Iran showing signs of clashing again in the region, concerns over crude oil supply disruptions are mounting. Countries with higher dependence on energy imports are more likely to face the dual pressures of surging oil prices and inflation.
International oil prices also surged. Brent crude futures for July delivery closed at $114.44 per barrel, up 5.8 percent from the previous session. West Texas Intermediate (WTI) futures for June delivery closed at $106.42 per barrel, up 4.39 percent from the previous day.
