IMF Warns: Iran War Could Trigger Global Stagflation, Oil Supply Drops 13%

International Monetary Fund (IMF) Managing Director Kristalina Georgieva has recently issued a stern warning, saying that the military actions the United States and Israel are carrying out against Iran are having far-reaching impacts on the global economy, and are expected to bring about higher inflation and lower economic growth. The conflict, which began six weeks ago, has already led to the closure of the Strait of Hormuz（Strait of Hormuz closed）, reducing global oil supply by about 13%, and the shockwave is rapidly spreading to economies worldwide.

Closing the Strait of Hormuz badly damages the global energy supply chain

About six weeks ago, the United States and Israel launched attacks on Iran, after which Iran blocked the Strait of Hormuz (Strait of Hormuz)—the world’s most important oil shipping route, carrying about two-tenths of global oil trade every day. According to a report by CNBC, the closure of the strait directly reduces global oil supply by 13%, causing energy prices to surge sharply, and triggers a chain reaction across global supply chains.

The scale of this geopolitical crisis far exceeds market expectations. The Strait of Hormuz is a major oil export route for Persian Gulf oil-producing countries— including Saudi Arabia, the UAE, Kuwait, Iraq, and others—so its closure is tantamount to cutting off the lifeline of global energy supply.

IMF forced to lower its 2026 global growth forecast

Georgieva said that the IMF originally expected to raise its global economic growth forecast for 2026 from the prior level to 3.3%, reflecting a positive trend in economic recoveries across countries. However, after the outbreak of the Iran conflict, this optimistic outlook has been forced to be abandoned, and the IMF will cut its global growth forecast in an upcoming report it is set to release.

This means the global economy is facing a “double hit”—on the one hand, inflationary pressure driven by soaring energy prices; on the other hand, economic slowdown caused by supply chain disruptions and uncertainty. In economics, this combination is called “stagflation,” which is one of the most difficult economic predicaments to deal with.

“This is stagflation”—Economists sound the alarm

Mark Zandi, chief economist at Moody’s Analytics, was candid about the current situation, pointing out that this is precisely a typical stagflation scenario. When energy costs rise sharply, businesses face higher production costs, consumers bear higher prices, and at the same time economic growth slows down—this is a replay of the 1970s oil crisis.

Stagflation poses a huge challenge for central banks: cutting interest rates to spur growth could worsen inflation, while raising rates to curb inflation could further hit the economy. Central banks in various countries are currently stuck in a tight policy bind.

The poorest countries will take the biggest hit

Georgieva particularly emphasized that this crisis is having the most severe impact on the world’s poorest countries. These countries typically rely heavily on energy imports and lack sufficient fiscal buffers to cope with the surge in oil prices. For many developing countries, higher energy costs will directly translate into rising food prices and increased transportation costs, thereby exacerbating poverty and social instability.

The international community is currently closely watching developments, and market participants are also re-evaluating risk allocation. As the IMF is about to release its latest World Economic Outlook report, the next policy responses by governments and central banks will be key factors in determining whether the global economy can avoid a deep bout of stagflation.

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