IMF Warns of Severe Economic Shocks from Prolonged Middle East War

Jihad Azour, Director of the Middle East and Central Asia Department at the International Monetary Fund, warned on Thursday that the prolonged duration of the conflict in the Middle East represents the primary risk to the region's economies, amid ongoing disruptions affecting energy production, shipping lanes, and critical infrastructure. He noted that the conflict imposes an asymmetric economic shock and places directly affected countries under severe pressure. Speaking at a press conference on the sidelines of the IMF and World Bank Annual Meetings in Bangkok, Azour stated that economic projections depend fundamentally on the swift return of energy production and trade to normalcy, alongside the capacity of nations to maintain macroeconomic stability. He explained that available surplus oil supplies prior to the war, reliance on alternative routes, demand adjustments, and drawing from reserves all contributed to containing the fallout from the attacks led by the United States and Israel on Iran, followed by Tehran's closure of the Strait of Hormuz. However, he cautioned about the limitations of these resources, indicating that declining inventories and reduced spare production capacity could lead to larger price adjustments if disruptions recur. The International Monetary Fund projected a contraction in the economies of the Middle East, North Africa, and Pakistan in 2026, followed by a strong yet uneven recovery in 2027. Azour pointed out that oil-exporting countries directly affected by the war will experience a significant contraction in 2026, followed by a sharp rebound the following year as energy production returns to normal levels, though output will remain below pre-war medium-term projections. He added that the region's oil-importing economies have demonstrated resilience and are expected to continue doing so. In the Caucasus and Central Asia, Azour stated that economies have absorbed the shock relatively well, with expectations of continued inflation decline from high levels, and a slowdown in growth during 2026 and 2027 compared to 2025. Azour urged policymakers to prioritize price stability, rebuild fiscal buffers, tighten monetary policies, pursue prudent fiscal policies, and enhance the capacity of economies to withstand future shocks.