The
International Monetary Fund has warned that the global economy could slip into recession if the Iran conflict continues and energy prices stay high for a long period.
In its latest World Economic Outlook, the IMF said global growth could fall below 2% in 2026 under a worst-case scenario where oil, gas and food prices remain elevated for years.
The fund said this would be a “close call” for a global recession, a situation seen only a few times since 1980.
The warning comes as energy markets remain under pressure following disruptions to key shipping routes in the Middle East, including the Strait of Hormuz. Failed peace talks between the United States and Iran have added further uncertainty.
Oil prices have surged close to $120 a barrel during the conflict before easing back to around $95, but volatility remains high.
The IMF said that if oil prices average around $110 this year and remain elevated into 2027, global inflation could rise to about 6%, forcing central banks to keep interest rates higher for longer.
Pierre-Olivier Gourinchas warned that a prolonged conflict could increase inflation, push up unemployment and worsen food insecurity in poorer countries. He said even if the war ends soon, the economic shock could resemble the 1970s oil crisis, although the world now depends less on fossil fuels.
The IMF outlined two possible outcomes. If the conflict ends quickly and energy supply returns to normal, global growth is expected to slow only slightly to around 3.1% in 2026. But if the war continues, growth could fall below 2%, increasing the risk of a global recession.
The impact would not be equal across countries. Oil-importing nations would face higher inflation and weaker growth, while some energy exporters could see short-term gains from higher prices.
The United Kingdom is expected to be among the hardest-hit advanced economies, with growth downgraded to 0.8% this year. Meanwhile, Iran’s economy is forecast to contract sharply under ongoing conflict conditions.
Scott Bessent said some short-term economic pain may be acceptable if it reduces long-term security risks linked to Iran’s nuclear threat. However, IMF officials warned that prolonged instability could damage global growth and increase financial pressure worldwide.
The IMF said the global outlook now depends heavily on how quickly the conflict is resolved and whether energy markets stabilise in the coming months.
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