Oil Shock to Slow Global Growth, Push Inflation Higher, IMF Warns
WASHINGTON, D.C. — A global oil supply shock tied to conflict in the Middle East is expected to weaken economic growth and drive up inflation across energy-importing nations, International Monetary Fund Managing Director Kristalina Georgieva warned Thursday.
Speaking ahead of the IMF’s Spring Meetings, Georgieva said the disruption has reduced global oil flows by roughly 13 percent and liquefied natural gas supplies by about 20 percent, triggering a sharp rise in energy prices and adding strain to supply chains.
“As always, a negative supply shock pushes prices up,” she said, noting that Brent crude surged from about $72 per barrel before the conflict to a peak of $120. Although prices have eased somewhat, they remain significantly above pre-conflict levels, with many countries paying steep premiums to secure fuel.
Georgieva described the impact as widespread but uneven. Countries that rely heavily on imported energy are expected to face the greatest pressure, while exporters may see more limited effects.
The consequences are already being felt across multiple sectors. Disruptions to refining and fuel distribution have tightened supplies of diesel and jet fuel, affecting transportation, trade, and tourism. At the same time, rising energy costs are contributing to growing food insecurity.
She warned that an additional 45 million people or more could face hunger as supply disruptions ripple through global markets, pushing the total number of people experiencing food insecurity above 360 million.
The IMF chief said the shock is being transmitted through three main channels: higher prices and shortages, rising inflation expectations, and tighter financial conditions.
“Higher prices for key inputs feed into many consumer goods, lifting inflation,” she said, adding that inflation expectations could “ignite a costly inflation process” if left unchecked.
Financial markets have already reacted, with widening bond spreads in emerging markets, adjustments in equity prices, and a stronger U.S. dollar, though some of those movements have since moderated.
Despite earlier momentum fueled by strong technology investment and supportive financial conditions, the IMF now expects global growth to slow.
“Even our most hopeful scenario involves a growth downgrade,” Georgieva said, pointing to infrastructure damage, ongoing supply disruptions, and weakening confidence.
Damage to critical energy infrastructure remains a major concern. Qatar’s Ras Laffan complex, which produces about 93 percent of the Gulf’s liquefied natural gas, has been shut down and may take three to five years to return to full capacity.
With more than 80 percent of countries classified as net oil importers, Georgieva said many economies remain highly vulnerable to sustained price shocks, especially those with limited fiscal capacity.
She urged governments to avoid measures such as export controls or price caps that could worsen global conditions.
“Don’t pour gasoline on the fire,” she said.
Central banks should stay focused on maintaining price stability and be prepared to act if inflation expectations become unanchored, while fiscal support should remain targeted and temporary, she added.
The IMF expects demand for balance-of-payments support to increase to between $20 billion and $50 billion in the near term, depending on how the conflict unfolds. (Source: IANS)
