Washington: The International Monetary Fund (IMF) said Thursday that a sustained rise in energy prices stemming from the war in West Asia could push global inflation higher and weigh on economic output.
According to BERNAMA News Agency, IMF spokesperson Julie Kozack spoke to the media, stating that the broader economic fallout would depend largely on the duration and intensity of the ongoing conflict. She identified three main transmission channels being monitored by the Fund: commodity prices, inflation and inflation expectations, and financial conditions.
Kozack highlighted significant disruptions already underway, noting the closure of the Strait of Hormuz, which has restricted access to 20 per cent of the global oil supply and seaborne LNG flows. Damage to energy infrastructure in the Gulf and Iran has further disrupted oil and gas production. The impact on commodity prices will largely depend on how long the closure persists and the extent of damage to hydrocarbon production facilities in the region.
According to Kozack, oil and natural gas prices have surged more than 50 per cent in the past month. Disruptions to fertilizer shipments and broader transport bottlenecks are also increasing the risk of higher food prices. Persistently high energy prices could elevate headline inflation and potentially lead to broader price pressures through second-round effects, making inflation expectations a critical area to watch.
Kozack explained that historical trends suggest a persistent 10 per cent rise in oil prices could raise global headline inflation by about 40 basis points, while global output might decline by between 0.1 per cent and 0.2 per cent. She also mentioned tightening financial conditions, with global stock markets declining and bond yields rising across various economies, including the United States, Britain, and Europe. Similar patterns are emerging in developing economies, where volatility has increased, the US dollar has strengthened, and several currencies have weakened.
The IMF plans to provide a broader update on global, regional, and country-level outlooks in its upcoming World Economic Outlook report in April. Kozack noted initial IMF assessments indicate weaker growth in Gulf economies. While higher energy prices might partially or fully offset lower output in some countries, depending on how quickly exports resume, regional fiscal and external balances are likely to face pressure.
She added that most Gulf Cooperation Council countries have maintained substantial policy buffers and have bolstered their resilience through reforms, economic diversification efforts, and logistics improvements. Kozack stated the main transmission channel for Europe is energy, given the region's reliance on imports, while tighter financial conditions are expected to affect the outlook.
The IMF staff have updated their assessment of how the conflict and higher oil prices might impact the US economy for the country's Article IV consultation report. When asked about the US public debt reaching US$39 trillion, Kozack reiterated the IMF's recommendation for Washington to reduce its fiscal deficit and establish a firm downward trajectory for public debt.
On monetary policy, she emphasized that central banks should remain vigilant regarding the inflationary implications of higher energy prices, especially their effect on inflation expectations. Kozack also noted that the IMF is in close contact with member countries. As of now, no formal requests for emergency financing have been received, but the Fund remains prepared to utilize its available tools to support members as conditions develop.