IMF Says Middle East War Poses Risk to World Economy

(MENAFN) The escalating Middle East conflict poses serious risks to the world economy — threatening to stoke inflation and undercut growth — though the full damage remains impossible to quantify at this stage, a senior International Monetary Fund official cautioned Tuesday.

IMF First Deputy Managing Director Daniel Katz, speaking at the Milken Institute's Future of Finance event in Washington, said the global economy had been on track for sustained, solid expansion before the latest flare-up in the Gulf — a baseline that is now clouded by mounting uncertainty.

"The conflict could be very impactful on the global economy across a range of metrics, whether it's inflation, growth and so on, but it was still early to have a firm conviction," he noted.

Katz said the IMF would assess direct damage across the region, scrutinizing the toll on physical infrastructure, tourism, air transportation, manufacturing, and energy facilities. A prolonged disruption to energy supplies — particularly any sustained closure of the Strait of Hormuz — could deliver severe consequences, especially for nations heavily dependent on oil export revenues. The breadth of the impact, he added, would ultimately hinge on each country's exposure and the depth of its fiscal reserves.

Markets are already pricing in the risk. Katz pointed to recent spikes in oil and natural gas prices, alongside moderate upticks in interest rates, as evidence that traders are beginning to factor elevated energy costs into inflation expectations.

Should the energy price surge prove short-lived and inflation expectations stay anchored, central banks may be able to look past the disruption. But a more persistent shock that unsettles price expectations could force a monetary policy response — and in the face of protracted uncertainty, Katz said, policymakers are likely to move with caution, adjusting their stance as conditions evolve.

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