How the War in the Middle East Is Affecting Energy, Trade, and Finance
IMF Blog, March 30, 2026
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- Authors: Tobias Adrian, Jihad Azour, Nigel Chalk, Pierre-Olivier Gourinchas, Alfred Kammer, Abebe Aemro Selassie, Krishna Srinivasan, Rodrigo Valdes
- Published: March 30, 2026
Overview
- The war in the Middle East is a global but asymmetric shock: energy importers are more exposed than exporters; poorer countries are more exposed than richer ones; countries with meager buffers are more exposed than those with ample reserves.
- The conflict has caused damage to infrastructure and industries in directly affected countries, reducing short‑term growth prospects.
- The IMF will provide a fuller assessment in the World Economic Outlook and Global Financial Stability Report on April 14, followed by the Fiscal Monitor on April 15.
- Quoted guidance: “In an uncertain world, more countries are needing more of our support. We are there for them.” —Kristalina Georgieva
Energy prices (main transmission channel)
- The de facto closure of the Strait of Hormuz and damage to regional infrastructure have produced the largest disruption to the global oil market in its history (International Energy Agency).
- Transmission effects:
- About 25 to 30 percent of global oil and 20 percent of liquefied natural gas pass through the Strait of Hormuz.
- For fuel‑importing economies, higher prices act like a large, sudden tax on income.
- Regional impacts:
- Energy‑importing economies in Africa, the Middle East and Latin America face higher import bills on top of limited fiscal space and external buffers.
- In Asia, higher fuel and power bills raise production costs and squeeze purchasing power; balance‑of‑payments pressures are already weighing on currencies in some countries.
- In Europe, countries such as Italy and the United Kingdom are especially exposed by reliance on gas‑fired power; France and Spain are relatively protected by greater nuclear and renewables capacity.
- Oil‑exporting countries that can still export may see stronger fiscal and external positions; producers with constrained exports—including several Gulf Cooperation Council members—will see much less upside.
- Uncertainty and risk premia may curb investment and growth even after transit resumes.
Supply chains and trade
- Rerouting tankers and container ships increases freight and insurance costs and lengthens delivery times; air‑traffic disruptions around key Gulf hubs impact global tourism.
- Fertilizer and agricultural inputs:
- About one‑third of fertilizer shipments pass through the Strait of Hormuz; disruptions occur as Northern Hemisphere planting begins, threatening yields and harvests and pushing food prices higher.
- Critical inputs and manufacturing materials:
- The Gulf supplies a large share of the world’s helium.
- Indonesia provides roughly half of global nickel and could face a shortage of sulfur needed to process the metal.
- Remittances and services:
- Eastern African economies that depend on trade links with and remittances from Gulf countries face weaker demand for services exports, logistical bottlenecks, and reduced remittances.
- Distributional vulnerability:
- Food accounts for about 43 percent of consumption on average in low‑income developing countries, compared with 25 percent in emerging market economies and 12 percent in advanced economies.
Inflation and inflation expectations
- Persistent elevated energy and food prices will fuel inflation worldwide; historically, sustained oil‑price spikes push inflation higher and growth lower.
- Transmission to prices:
- Higher transport and input costs feed into prices of manufactured goods and services over time.
- Regional pressures:
- Much of Asia and parts of Latin America (where inflation had been relatively low) will see tests to inflation expectations, especially where currencies are weaker and energy imports large.
- In Europe, another energy‑driven spike compounds existing cost‑of‑living strains and raises the risk of more persistent wage demands.
- In low‑income countries—especially in Africa, parts of the Middle East, and Central America—higher food prices carry acute social and economic costs.
- Risk of de‑anchored expectations:
- If households and firms come to expect higher inflation for longer, wage‑price dynamics may harden and containment could require sharper slowdowns.
Financial conditions
- Market reaction so far:
- Global stock prices have declined; bond yields have risen across major advanced economies and many emerging markets; volatility has increased.
- The market sell‑off has been contained relative to past global shocks but has tightened financial conditions worldwide.
- Distributional effects:
- Higher yields and wider credit spreads in Europe and many emerging markets raise debt‑service burdens and complicate refinancing for governments and firms.
- In sub‑Saharan Africa and some low‑income economies in the Middle East and South Asia, meager reserves and limited market access make external shocks to financing conditions more dangerous—especially as higher import bills widen trade deficits and pressure currencies.
- High levels of debt and tighter financial conditions may raise debt financing costs in the Middle East and elsewhere.
- Advanced economies with deep domestic capital markets and commodity exporters with ample buffers (e.g., Saudi Arabia and United Arab Emirates—or Latin American commodity producers like Brazil and Ecuador) can better absorb market stress, though not immune to higher risk premia.
Scenarios and possible trajectories
- Short conflict scenario: oil and gas prices spike sharply before markets adjust.
- Long conflict scenario: energy stays expensive for an extended period, straining importers and keeping growth subdued.
- Intermediate scenario: tensions linger, energy remains costly, inflation proves hard to tame, and geopolitical uncertainty persists.
- Key determinants: duration of conflict, geographic spread, and extent of infrastructure and supply‑chain damage.
Policy implications and IMF role
- Policy approach:
- Measures should be carefully calibrated to country‑specific needs.
- Countries with limited reserves and little fiscal room should be especially cautious.
- IMF support:
- The IMF is stepping up support with policy advice, capacity development, and, where needed and in coordination with the international community, financial assistance—focused especially on the most vulnerable members.
- Fiscal sustainability concern:
- The shock arrives when many countries face record‑high debt levels, heightening fiscal sustainability risks.
—Jihad Azour, Nigel Chalk, Alfred Kammer, Abebe Aemro Selassie, Krishna Srinivasan, Pierre‑Olivier Gourinchas, Tobias Adrian, and Rodrigo Valdés. March 30, 2026.