IMF: Global economy at risk of recession if Iran war persists
By BBC, April 14, 2026The global economy is at risk of recession if the US-Israel war with Iran continues and high energy prices persist, the International Monetary Fund (IMF) has warned.
In its World Economic Outlook report, the IMF said in a worst case scenario – where oil, gas and food prices spike and remain high this year and next – global growth could fall below 2 per cent in 2026.
“This would mean a close call for a global recession which has happened only four times since 1980,” it said, the most recent being during the Covid pandemic.
Energy prices have soared since the war began more than six weeks ago after the key Strait of Hormuz shipping route effectively closed and peace talks between the US and Iran failed.
The IMF said: “Once again, the global economy is threatened with being thrown off course – this time by the outbreak of war in the Middle East at the end of February 2026.”
It said the most severe conditions that could lead to a worldwide slowdown would include oil prices reaching an average $110 per barrel (Ksh14,245 per barrel) this year and hitting $125 (Ksh16,188) in 2027.
Based on these assumptions, the IMF said inflation could reach as much as 6 per cent next year. This could force central banks to increase interest rates to slow the pace of price rises.
Pierre-Olivier Gourinchas, chief economist at the IMF, told the BBC: “Global recession is sort of a concept that is a bit fuzzy when we’re looking at global numbers.
“And so, yes, 2 per cent is a situation that will feel for most people around the world as if it’s a recession time. Unemployment will be high. For some countries, food prices, food insecurity might rise.”
Oil has risen close to $120 during the Iran conflict but has since fallen back and on Tuesday, a barrel of crude cost $98.85.
Oil has risen close to $120 (Ksh15,540) during the Iran conflict but has since fallen back and on Tuesday, a barrel of crude cost $98.85 (Ksh12,791).
Moreover, the IMF pointed out that the risk of recession would only increase if severe conditions continued over two years.
It said that if the conflict is resolved in the next few weeks and if energy production and exports from the Middle East begin to normalise by the middle of this year, global growth would ease to 3.1 per cent for 2026.
That is below an earlier forecast of 3.3 per cent. It also left its prediction for global growth next year unchanged at 3.2 per cent.
UK growth downgrade confirmed
Of the world’s advanced economies, the IMF has forecast that the UK will be the hardest hit by the energy shock from the Iran war.
It cut its estimate for UK growth this year to 0.8 per cent, from a previous prediction of 1.3 per cent. However, it expects the UK to then recover with economic expansion of 1.3 per cent.
Oil exporting nations in the Gulf are likely to see a sharp slowdown in economic growth or even a contraction this year, according to IMF forecasts.
It estimates that Iran’s economy will shrink by 6.1 per cent this year. However, it forecasts a rebound of 3.2 per cent in 2027 – providing the war ends in the next few weeks.
Some countries such as Qatar, a major supplier of liquefied natural gas (LNG), have been targeted with missiles and drones by Iran.
Qatar’s Ras Laffan, the world’s largest LNG refinery, has been struck and is not expected to be fully operational for some time.
The IMF forecasts that Qatar’s economy will contract by 8.6 per cent in 2026, before bouncing back with 8.6 per cent growth next year.
It also predicts that Iran’s neighbour, Iraq, will take an economic hit this year from the war, with a slowdown of 6.8 per cent. But it is expected to recover to 11.3 per cent growth in 2027.
A country’s economic resilience will depend on a number of factors, the IMF said, including the damage to energy infrastructure, dependence on the Strait of Hormuz and availability of alternative export routes.
Saudi Arabia, for example, has its East-West pipeline which runs from the Persian Gulf to the Red Sea and can pump up to 7 million barrels of oil per day.
Saudi’s growth will slow in 2026 but the economy is still expected to expand by 3.1 per cent, and is projected to grow by 4.5 per cent next year.
The IMF said most Middle East oil exporters are forecast for an upturn next year “based on the assumption that energy production and transportation are normalized over the next few months”.
But it cautioned that this assumption “may need to be revised if the duration of the conflict extends and the degree of damage suffered gets reassessed”.
One country that has benefited from the surge in oil prices is Russia, according to IMF forecasts.
The Russian economy is expected to grow by 1.1 per cent this year and next, ahead of previous predictions of 0.8 per cent and 1 per cent respectively.
Russia had been hit by a series of sanctions after it launched a full-scale invasion of Ukraine more than four years ago.
In March, US President Donald Trump removed restrictions on exports of Russian oil as global prices soared.
He also temporarily lifted sanctions on 140 million barrels of Iranian oil for 30 days.
Trump has since announced a US blockade of Iranian ports to stop exports.