The Middle East War Will Have an Uneven Impact on the Western Hemisphere

IMF Blog, April 17, 2026

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The Middle East War Will Have an Uneven Impact on the Western Hemisphere

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Bibliographic details

• Authors: Nigel Chalk
• Published: April 17, 2026

Overview and context

• The Western Hemisphere started 2026 "on a solid footing." In most countries, growth was at potential and inflation was close to target.
• Last year’s shocks from US tariffs were managed well, and export growth had accelerated despite policy uncertainties.
• The war in the Middle East is producing shifts in global financial conditions and capital flows, swings in investor risk aversion, and volatile commodity prices—effects that will vary across countries and depend on the duration of the conflict and its associated disruptions.
• The conflict increases downside risks for the region, complicating recovery from the consequences of COVID-19 and creating uncertainty over whether the current cease-fire will endure.

Uneven impacts across countries and sectors

• Oil producers benefiting from high energy prices:
  • Argentina, Brazil, Canada, Colombia, Ecuador, Guyana, Trinidad and Tobago, the United States, and Venezuela.
  • The commodity shock is strengthening their balance of payments, supporting growth, and helping government finances.
  • Caveat: "the most vulnerable will be hit hard by higher energy and food prices," even in oil-producing countries.
• Tourism-dependent Caribbean economies:
  • "Likely to be the hardest hit."
  • Characteristics: high debt and large net energy imports, "averaging around 6 percent of gross domestic product."
• Central America:
  • High exposure to energy price increases and, for some, limited fiscal space constrains mitigating policy measures.
  • Past efforts to increase the share of electricity generated by renewables will provide some relief for some countries.
• Countries with sizable current account deficits and reliance on global financing:
  • Face higher financing costs and reduced market access as the war reduces investors’ risk appetite.
• Summary contrast:
  • "While the impact on economic activity will differ greatly across countries, the impact on inflation is more uniform."

Inflation and cost-of-living effects

• Inflation will be higher for all countries in the region.
• The region will face much higher fuel, transport, food, and other input costs.
• These higher costs will "create hardship for those families that can least afford the higher cost of these essential goods."

Preserving hard-won macroeconomic gains and policy priorities

• Institutional strength matters:
  • "Countries with the strongest institutional macroeconomic frameworks will be best positioned to withstand the shock."
  • Key features: anchored inflation expectations, credible fiscal plans, and low debt.
• Use of fiscal space:
  • Countries that "had built fiscal space should now use it judiciously."
  • Those with less space may have to tighten both fiscal and monetary policies.
  • Energy exporters with low international reserves, high debt, or weak fundamentals should "save most of the windfall."
• Monetary policy and central banks:
  • Following post-pandemic success in controlling inflation, central banks are again called upon to ensure price stability.
  • Many central banks in the region have "solidified their credibility over the past 20 years," as shown by well-anchored inflation expectations.
  • Some countries with "less well-articulated monetary frameworks" will face greater challenges countering second-round effects of higher commodity prices; containing wage and price inflation will "impose a larger cost on economic activity" for these countries.
• Fiscal policy design and protection of reforms:
  • Fiscal authorities should "resist political pressure to contain or delay the inevitable food and fuel price increases."
  • Preserve moves to replace untargeted fuel and food subsidies with well-designed safety nets.
  • Limited fiscal space should be used strategically to focus help on vulnerable families, farmers, and businesses.
  • Given high debt levels, there is "little scope to further increase fiscal deficits." Priority should be reducing less critical outlays or raising revenues from those firms and households "with the greatest capacity to pay."

IMF support offer

• The IMF will provide bespoke support to member countries managing the macroeconomic implications of the war:
  • Providing advice.
  • Sharing insights from what other countries are doing to contend with the economic implications of the war.
  • Where needed, deploying the Fund’s ample lending capacity.

Source: The Middle East War Will Have an Uneven Impact on the Western Hemisphere — Nigel Chalk, April 17, 2026