The global economy is at risk of recession if the US-Israel war with Iran continues and high energy prices persist, the International Monetary Fund (IMF) has warned.
In its World Economic Outlook report, the IMF said in a worst-case scenario – where oil, gas and food prices spike and remain high this year and next – global growth could fall below 2% in 2026.
“This would mean a close call for a global recession which has happened only four times since 1980,” it said, most recently during the Covid pandemic.
US Treasury Secretary Scott Bessent told the BBC “a small bit of economic pain” was a price worth paying to eliminate the risk of Iran striking Western capitals with nuclear weapons.
Energy prices have soared since the war began more than six weeks ago after the key Strait of Hormuz shipping route effectively closed and peace talks between the US and Iran failed.
The IMF said: “Once again, the global economy is threatened with being thrown off course – this time by the outbreak of war in the Middle East at the end of February 2026.”
It said the most severe conditions that could lead to a worldwide slowdown would include oil prices reaching an average $110 per barrel this year and hitting $125 in 2027.
Based on these assumptions, the IMF said inflation could reach as much as 6% next year. This could force central banks to increase interest rates to slow the pace of price rises.
IMF chief economist Pierre-Olivier Gourinchas told the BBC a prolonged conflict would lead to spiralling inflation, push up unemployment and lead to food insecurity in some countries.
He warned that even if the conflict ended today, the impact on oil supply would be as big as the fallout from the 1970s oil crisis, when Arab oil producers placed an embargo on the US and other countries which backed Israel during the Yom Kippur war.
But Gourinchas said the world was now less dependent on oil and fossil fuels, so the impact on consumers would be less severe.
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Oil has risen close to $120 during the Iran conflict but has since fallen back and on Tuesday, a barrel of crude cost $95.
Moreover, the IMF pointed out that the risk of recession would only increase if severe conditions continued over two years.
It said if the conflict was resolved in the next few weeks and if energy production and exports from the Middle East begin to normalise by the middle of this year, global growth would ease to 3.1% for 2026.
That is below an earlier forecast of 3.3%. It also left its prediction for global growth next year unchanged at 3.2%.
