The International Monetary Fund (IMF) has significantly lowered its global economic growth projections, attributing the revision to escalating tensions between the United States and Iran, which have driven a sharp increase in energy and food costs worldwide.
On Tuesday, the IMF announced a revised global growth forecast of 3.1 percent for the current year, a notable reduction from its earlier prediction of 3.3 percent. This initial forecast was made prior to the commencement of military actions by the US and Israel against Iran on February 28.
Following these events, Iran retaliated by closing the vital Strait of Hormuz, a crucial choke point for global oil and gas supplies, and launched attacks on regional energy infrastructure. These actions have led to a surge in oil prices and a tightening of oil and gas supplies, severely impacting countries heavily reliant on these imports. The new report also indicates a slowdown compared to last year’s 3.4 percent economic expansion, with the IMF warning that certain regions and nations will face disproportionately severe consequences.
Iran’s economic outlook, for instance, saw one of the most drastic country-level adjustments, with an initial modest growth forecast for 2026 slashed by 7.2 points, now projecting a contraction of 6.1 percent. Similarly, Saudi Arabia’s GDP growth forecast was cut from 4.5 percent to 3.1 percent.
In its World Economic Outlook report, the IMF highlighted the immediate policy dilemmas posed by the ongoing hostilities in the Middle East: “between fighting inflation and preserving growth and between supporting those affected by the rising cost of living and rebuilding fiscal buffers.” Chief Economist Pierre-Olivier Gourinchas emphasized that the impact would be “highly uneven across countries, hitting countries in the conflict region, commodity-importing low-income countries, and emerging market economies hardest.”
For the Middle East and North Africa, the 2026 growth forecast was reduced by 2.8 points to 1.1 percent, while the Middle East and Central Asia saw a 2 percentage point cut, bringing its forecast to 1.9 percent. The eurozone is also expected to experience slower growth, now projected at 1.1 percent this year, down from 1.4 percent in 2025 and 1.3 percent predicted in January.
These lowered forecasts coincide with surging costs for oil, gas, and fertilizers, alongside a significant slowdown in traffic through the Strait of Hormuz, which typically handles approximately 20 percent of the world’s oil and liquefied natural gas supplies. Aleksandar Tomic, associate dean at Boston College, told Al Jazeera, “It is just another confirmation of what we knew, which is that the war in the Middle East is changing the growth trajectory in the immediate term and, if it expands, possibly in the longer term as well.”
The IMF also anticipates a rise in global inflation to 4.4 percent, an increase of 0.6 percentage points from its January forecast. The fund is closely monitoring the impact of a stronger US dollar on inflation in developing economies, as it often acts as a channel for tighter financial conditions in emerging markets. The US growth outlook for this year was slightly trimmed to 2.3 percent.
Experts warn that sustained disruptions in the Strait of Hormuz could exacerbate inflationary pressures in the coming months. Babak Hafezi, a professor at American University, explained to Al Jazeera that “for every $10 sustained increase in gas prices [per barrel], we should expect a decrease in GDP growth of about 0.4 percent. Meaning, a sustained $60 increase above the average price would put the US firmly in recession territory.” US petrol prices have continued to climb, with the average gallon costing $4.11, up from $2.98 on February 28.
Despite these concerns, oil prices saw a drop on Tuesday amidst hopes that Iran might resume talks with the US to de-escalate the conflict. Brent crude futures fell to $95.02 per barrel, and West Texas Intermediate crude dropped to $91.84. However, these prices remain significantly higher than pre-war levels.
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