Strait of Hormuz closure threatens global economy, IMF warns

The International Monetary Fund has warned that the global economic outlook has “abruptly darkened” following the outbreak of war in the Middle East, with the potential closure of the Strait of Hormuz raising the risk of an energy crisis on an unprecedented scale.

The conflict, which began on February 28, 2026, has disrupted what had been a steady global growth trajectory. Prior to the war, the IMF said it was poised to upgrade its forecasts, supported by strong technology investment, easing trade tensions, fiscal support, and accommodative financial conditions. However, the war has overwhelmed these positive forces.

At the core of the shock is energy. The Strait of Hormuz, a critical artery for global hydrocarbon supply, faces potential disruption alongside damage to key production facilities. The IMF warns that the scale and duration of the conflict, and the time required to restore energy flows will determine the magnitude of the global economic fallout.

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The impact is expected to be transmitted through three main channels. First, higher commodity prices act as a classic supply shock, raising costs across sectors such as food, transportation, and chemicals, while eroding purchasing power and pushing up inflation. Second, these pressures risk triggering wage and price spirals, particularly in economies where inflation expectations are already fragile. Third, financial markets could react with a “risk-off” shift, leading to capital flight, higher risk premiums, and a stronger US dollar, further tightening global financial conditions.

Under its reference forecast, which assumes a relatively short-lived conflict, global growth is projected at 3.1 percent in 2026, a downgrade of 0.2 percentage points from earlier estimates. Inflation is expected to rise to 4.4 percent. However, the IMF cautions that more severe scenarios, such as prolonged disruption in the Strait of Hormuz could push global growth down to around 2 percent, with inflation nearing 6 percent, bringing the world economy close to recession.

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Emerging and developing economies, particularly energy importers with limited buffers, are expected to be hit hardest. The IMF stressed that while an early end to the conflict would limit the damage, policymakers must remain vigilant, avoid broad-based subsidies, and ensure targeted, temporary support to protect the most vulnerable.