Cushioning the Middle East War Shock

IMF News, April 9, 2026

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Cushioning the Middle East War Shock

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Bibliographic details

• Published: April 9, 2026

Overview

• Speech by IMF Managing Director Kristalina Georgieva at the 2026 Spring Meetings in Washington, DC (April 9, 2026).
• Key focus: understanding the nature, channels, size, and policy responses to the global economic shock from the Middle East war.

Nature of the shock

• Characterized as a negative supply shock that is "large, global, and asymmetric":
  • World’s daily oil flow cut by some 13 percent.
  • LNG flow cut by some 20 percent.
  • Brent jumped from $72 per barrel on the eve of hostilities to a peak of $120.
• Asymmetric impacts depend on proximity to the conflict, whether countries are energy exporters or importers, and national policy space.
• Supply interruptions and ripple effects include:
  • Oil refinery disruptions due to minimum flow rate requirements.
  • Shortages of refined products including diesel and jet fuel, disrupting transportation, trade, and tourism.
  • Food insecurity for another 45 million people, taking the total number of people in hunger to over 360 million, with potential worsening from higher fertilizer prices.
  • Supply chain disruptions for industrial inputs such as sulfur, helium for silicon chipmaking and MRI imaging, and naphtha for plastics.
• Examples of lasting physical damage and disruption:
  • Qatar’s Ras Laffan complex: producer of 93 percent of the Gulf’s LNG, some 80 percent of it going to Asia-Pacific; Ras Laffan has essentially been shut since March 2, took direct hits on March 19, and could take 3‒5 years to restore to full capacity.
  • Ship passages through Bab-el-Mandeb on the Red Sea remain stuck at about half their 2023 level.
  • Five-week gap observed in tanker traffic from the Gulf.

Transmission channels to the global economy

• Three main channels:

1. Price impact and supply shortages: higher input prices feed into consumer goods and lift inflation; shortages reduce demand. 2. Inflation expectations: near-term inflation expectation curves for the U.S. and the euro area have "moved to the right" (higher short-run expectations) and, for the euro area, "widens, indicating higher uncertainty." Longer-run expectations have not budged. 3. Financial conditions: tightened from a highly supportive starting point—emerging market bond spreads widened substantially; equity prices adjusted; the dollar appreciated; some easing now observed.

• Context: world has become progressively less energy intensive since the 1980s and renewable energy’s share has increased, but oil remains the number one fuel.

Growth impact and scenarios

• Size of growth impact depends on whether a ceasefire holds and the extent of war damage.
• World Economic Outlook (to be published next week) will include a range of scenarios:
  • Relatively swift normalization.
  • Middle scenario.
  • Scenario where oil and gas prices stay much higher for much longer and second-round effects take hold.
• All scenarios start from prior momentum driven by strong AI and tech investment and supportive financial conditions.
• Even the most hopeful scenario implies a growth downgrade because of infrastructure damage, supply disruptions, losses of confidence, and scarring effects.
• Distributional effects:
  • Over 80 percent of countries are net oil importers (pile-up of dots on the left in the referenced chart).
  • Hits have disproportionately fallen on major oil exporters, though regional non-oil economies also affected.
  • Vulnerable oil importers cluster with lower sovereign credit ratings; Sub-Saharan Africa (colored yellow) and small-island nations (colored orange) largely fill that quadrant of vulnerability.
• Noted variation: some oil exporters far from the region enjoy terms-of-trade gains yet still face higher costs.

Policy recommendations

• General principle: demand adjustment is unavoidable in a classic negative supply shock; policymakers must avoid actions that worsen global conditions.
• Immediate cautions:
  • Reject go-it-alone actions—export controls, price controls, and similar measures—that can further upset global conditions.
• Staged policy approach depending on developments:

1. For now: "waiting and watching" is valuable. Central banks should stress commitment to price stability and otherwise stay on hold—with a stronger bias to action if credibility is in question. Fiscal authorities should provide targeted and temporary support to the vulnerable, aligned with medium-term fiscal frameworks. 2. If inflation expectations threaten to break anchor: central banks should step in firmly with rate hikes; fiscal support should remain targeted and temporary (acknowledging rate hikes will further dampen growth). 3. If severe tightening of financial conditions adds a negative demand shock: monetary policy faces a delicate balancing act while fiscal policy—if and only if there is fiscal space—switches to well-calibrated demand support.

• Specific policy design notes:
  • Fiscal support should be targeted and temporary with effective sunset clauses.
  • Avoid untargeted tax cuts, broad energy subsidies, and price-based measures that mute price signals and the necessary demand response.
  • Ensure fiscal and monetary policies do not pull in opposite directions.

Fiscal and financial sector considerations

• Fiscal context:
  • The world faces a "fiscal space problem." Public debt is generally much higher than 20 years ago, including in most G20 countries.
  • Interest payments are rising as a share of revenue at all income levels.
  • All countries must deploy limited fiscal resources responsibly; most must move decisively to rebuild fiscal space after this shock.
• Financial sector:
  • Financial regulators and supervisors must be alert, nimble, and responsive.
  • Financial conditions have been highly accommodative, fueled by tech optimism and new intermediaries, many nonbanks—raising risks of reversal.
  • Micro- and macro-prudential policies should reduce financial stability risks and ensure resilience.
  • Market expectations show major central banks’ policy rate paths shifted upward (four key market-implied paths referenced).
• Coordination and information-sharing:
  • Emergency conservation measures observed globally (general campaigns, limits on private vehicle use, remote work) are documented in the International Energy Agency’s energy policy tracker.
  • IMF has joined forces with the IEA and the World Bank to form a coordination group, with the IMF leading on macroeconomics.

IMF response and support

• IMF readiness:
  • IMF can scale up IMF-supported programs where needed; "there are more programs to come."
  • Given spillovers of the Middle East war, near-term demand for IMF balance-of-payments support is expected to rise and to range from $20 billion to $50 billion, with the lower bound prevailing if the ceasefire holds.
  • Two points noted:
  • The range would be much higher were it not for sound policymaking of many emerging market economies over the decades.
  • The IMF is well resourced to meet this shock.
  • "Our 191 member countries can count on us to support them with financing if needed" and for convening to find a path through uncertainty.

Source: Speech by IMF Managing Director Kristalina Georgieva at the 2026 Spring Meetings (April 9, 2026), IMF Communications Department.

References

• https://meetings.imf.org/en/2026/spring
• https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva
• https://www.imf.org/-/media/images/imf/bios/mds/kristalina-georgieva-md-2026-lg.jpg
• Speeches
• PRESS CENTER
• https://www.imf.org/en/home