The 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% 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 this year and hitting $125 in 2027.
Based on these assumptions, the IMF said inflation could reach as much as 6% next year. This could force central banks to increase interest rates to slow the pace of price rises.
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.
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% for 2026.
That is below an earlier forecast of 3.3%. It also left its prediction for global growth next year unchanged at 3.2%.
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% this year. However, it forecasts a rebound of 3.2% 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% in 2026, before bouncing back with 8.6% growth next year.
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.