By Uche Usim
The International Monetary Fund (IMF) has warned that the ongoing war in the Middle East is delivering a fresh global economic shock, deepening strains on many countries still struggling to recover from previous crises. While the human toll is devastating, the Fund says the economic fallout is already spreading unevenly across regions, hitting energy importers, low-income economies, and countries with weak financial buffers the hardest.
In its latest assessment, the IMF noted that the crisis is global but highly asymmetric. Energy-importing economies are bearing the brunt of rising fuel and transport costs, while exporters with access to global markets may benefit from higher prices. Poorer nations, already grappling with limited fiscal space and rising debt, are the most exposed to the ripple effects of the conflict.
“The world faces yet another shock,” the Fund observed, noting that the war is “upending lives and livelihoods” while dimming the outlook for economies that had only just begun to recover from earlier disruptions.
The IMF highlights energy as the main transmission channel of the crisis. With about 25 to 30 percent of global oil and nearly 20 percent of liquefied natural gas passing through key routes such as the Strait of Hormuz, any disruption has immediate and far-reaching consequences. The de facto closure or instability in these corridors has triggered what the International Energy Agency described as one of the largest disruptions to the global oil market in history.
For fuel-importing countries, the effect is akin to “a large, sudden tax on income,” the IMF said, as higher import costs squeeze household purchasing power and government budgets. This is especially pronounced in parts of Africa, Asia, and Latin America, where governments already face tight fiscal conditions and limited external buffers.
The impact is also being felt in major manufacturing hubs in Asia, where rising fuel and electricity costs are pushing up production expenses and eroding competitiveness. In some economies, balance-of-payments pressures are emerging, with weakening currencies adding to inflationary risks. In Europe, the shock is reviving concerns reminiscent of the 2021–22 gas crisis, particularly in countries heavily reliant on gas-fired power.
Meanwhile, oil-exporting nations that can still move their exports to global markets stand to gain from higher prices, but even these economies face constraints. The IMF warns that constrained exports, high risk premia, and geopolitical uncertainty could limit investment and temper growth prospects even in traditionally strong producers.
Beyond energy, the conflict is also disrupting global supply chains. Rerouting tankers and cargo ships is increasing freight and insurance costs while extending delivery times. Air traffic disruptions around key Gulf hubs are affecting tourism and adding further strain to global trade.
Fertilizer supply chains have also been hit, with roughly one-third of global shipments passing through the affected region. Disruptions at such a critical juncture, just as planting seasons begin in the Northern Hemisphere, raise concerns about food production and prices. Higher fertilizer costs could translate into lower yields, threatening harvests and amplifying food inflation worldwide.
The IMF warns that low-income countries will bear the heaviest burden. In these economies, food accounts for about 36 percent of household consumption, compared to 20 percent in emerging markets and just 9 percent in advanced economies. This makes them particularly vulnerable to spikes in food and fertilizer prices, turning an economic shock into a potential socio-political crisis.
“Parts of the Middle East, Africa, Asia-Pacific, and Latin America face the added strain of higher food and fertilizer prices and tighter financial conditions,” the Fund said, noting that external support may be needed even as such assistance has been declining.
The war is also creating shortages and price surges in critical industrial inputs. The Gulf region supplies a large share of the world’s helium, essential for semiconductors and medical equipment, while disruptions in sulfur supplies could affect nickel processing, key to electric vehicle production. These bottlenecks are already affecting industries and could have long-term implications for global manufacturing.
At the same time, the IMF cautions that persistent high energy and food prices will likely fuel global inflation. Sustained oil price spikes historically lead to higher inflation and slower growth, as rising transport and input costs filter through supply chains into consumer prices.
For many countries that had only just begun to tame inflation, this represents a major setback. In Asia and parts of Latin America, lower inflation had been a sign of recovery, but the new wave of price pressures could unsettle expectations. In Europe, further energy shocks risk aggravating cost-of-living challenges and triggering stronger wage demands.
In low-income economies, particularly in Africa and parts of the Middle East and Central America, the effects could be severe. With households already spending a large share of income on food, rising prices could erode living standards and intensify social pressures.
The IMF warns that if inflation expectations become unanchored, the challenge of restoring price stability will become even harder, potentially forcing policymakers to tighten monetary policy more aggressively and slow economic growth further.
Financial markets have also reacted to the unfolding crisis. Global stock markets have declined, bond yields have risen, and volatility has increased across both advanced and emerging economies. While the market response has so far been more contained than in previous global shocks, the tightening of financial conditions is already being felt.
Higher yields and wider credit spreads are increasing borrowing costs for governments and companies alike. This is particularly problematic for low-income countries and emerging markets, many of which already face high debt levels and limited access to capital markets. Rising import bills for fuel, food, and fertilizer are also widening trade deficits and putting additional pressure on currencies.
In contrast, advanced economies with deep financial markets and some commodity exporters with strong buffers are better positioned to absorb the shock, though they are not entirely immune to higher borrowing costs and risk premiums.
The IMF stresses that the uneven nature of the shock underscores the need for targeted policy responses. Countries must tailor their strategies based on their specific vulnerabilities, with those facing limited reserves and fiscal space urged to proceed cautiously.
Against this backdrop, the IMF says it is stepping up its support for member countries. This includes policy advice, capacity development, and financial assistance where necessary, often in coordination with other international institutions.
“In an uncertain world, more countries are needing more of our support. We are there for them,” IMF Managing Director Kristalina Georgieva has emphasized, highlighting the Fund’s role as a stabilizing force in turbulent times.
As the conflict continues to evolve, the IMF warns that its ultimate economic impact will depend on how long it lasts, how far it spreads, and the extent of damage to infrastructure and supply chains. For now, however, one outcome is clear: the war is reinforcing a fragile global economy, amplifying inflationary pressures, and testing the resilience of nations already stretched thin.
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