## Cushioning the Middle East War Shock

_IMF News, April 9, 2026_

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**Canonical URL:** [Cushioning the Middle East War Shock](https://www.imf.org/en/news/articles/2026/04/09/sp040926-spring-meetings-2026-curtain-raiser)

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## Bibliographic details
- Published: April 9, 2026

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### 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.*

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## References

- [https://meetings.imf.org/en/2026/spring](https://meetings.imf.org/en/2026/spring)
- [https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva](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](https://www.imf.org/-/media/images/imf/bios/mds/kristalina-georgieva-md-2026-lg.jpg)
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_Source: https://www.imf.org/en/news/articles/2026/04/09/sp040926-spring-meetings-2026-curtain-raiser_