IMF Warns Prolonged Iran Conflict Could Push Global Economy Toward Recession

The International Monetary Fund has warned that the global economy faces a serious risk of slipping into recession if the ongoing conflict involving Iran, the United States, and Israel continues and keeps energy prices elevated.

In its latest World Economic Outlook report, the IMF outlined a worst-case scenario in which oil, gas, and food prices surge and remain high through 2026. Under such conditions, global economic growth could fall below 2% next year — a level historically associated with near-recession conditions worldwide.

“This would mean a close call for a global recession, which has happened only four times since 1980,” the IMF noted, pointing to the most recent downturn during the COVID-19 pandemic.

Energy markets have been under intense pressure since the conflict escalated more than six weeks ago, particularly after disruptions to the Strait of Hormuz, a vital shipping corridor for global oil and gas supplies. The collapse of peace talks between Washington and Tehran has further heightened uncertainty.

The IMF cautioned that the most severe economic impact would occur if oil prices average $110 per barrel this year and rise to $125 by 2027. In that scenario, global inflation could climb as high as 6% next year, potentially forcing central banks to raise interest rates to contain price pressures.

IMF Chief Economist Pierre-Olivier Gourinchas said that while defining a global recession can be complex, growth around 2% would feel like one for many people worldwide, with rising unemployment and increased food insecurity in several regions.

Although oil prices briefly approached $120 per barrel during the conflict, they have since eased, trading at around $98.85 as of Tuesday. However, the IMF stressed that the risk of recession would increase significantly if current disruptions persist over an extended period.

A quicker resolution to the conflict could help stabilise the outlook. The IMF said that if fighting subsides in the coming weeks and energy production normalises by mid-year, global growth in 2026 could reach 3.1%, slightly below its earlier forecast of 3.3%.

Among advanced economies, the United Kingdom is expected to be the hardest hit by the energy shock, with growth forecast downgraded to 0.8% this year before a modest recovery to 1.3%.

Oil-exporting nations in the Gulf are also projected to face significant economic strain. Iran’s economy is expected to contract by 6.1% this year, though it could rebound by 3.2% in 2027 if the conflict ends soon.

Elsewhere in the region, Qatar — a major supplier of liquefied natural gas — has seen key infrastructure targeted, including the Ras Laffan industrial complex. Its economy is forecast to shrink by 8.6% in 2026 before rebounding strongly the following year.

Neighbouring Iraq is also expected to suffer a 6.8% slowdown this year, followed by a projected recovery to 11.3% growth in 2027. Meanwhile, Saudi Arabia is forecast to maintain positive growth of 3.1% in 2026, accelerating to 4.5% the year after.