IMF: Iran War Energy Shock Is Manageable—But Global Risks Are Rising

Kristalina Georgieva’s assessment is cautiously resilient rather than reassuring. The global economy has weathered the energy shock caused by the Iran war and the disruption around the Strait of Hormuz better than the IMF initially feared, but higher oil prices, persistent inflation, rising borrowing costs and deteriorating public finances could still weaken growth. 17

The IMF’s revised baseline calls for 3.0% global growth in 2026. That is still positive growth, but the risks around the forecast are tilted to the downside. 47

Why the energy shock has been less severe than feared

Several forces have so far absorbed part of the supply disruption:

• Oil and gas reserves have been drawn down.
• Producers outside the Gulf have increased supply.
• Renewable-energy capacity has expanded.
• Energy demand has fallen more than expected.
• Some economies have switched partly back to coal. 4

Georgieva described the outlook as a “tug of war”: the negative Gulf energy-supply shock is weighing on the economy, while investment linked to artificial intelligence is creating a countervailing growth impulse. The impact is not uniform. Countries’ exposure to Gulf energy, their macroeconomic stability and their position in AI-related supply chains all affect how they experience the shock. 17

Why the resilience remains fragile

The buffers supporting energy markets are not unlimited. As oil and gas inventories decline, another disruption could produce a sharper price response, particularly if energy demand rises during the winter. A renewed oil-price increase would put pressure on inflation and could delay the easing of restrictive interest rates. 56

Higher rates would also increase debt-service costs for governments and private borrowers. That could reduce household and business spending, weaken investment and further slow economic activity. 6

The concern is not limited to energy markets. Georgieva also pointed to rising government-bond yields and stalled disinflation as signs of worsening fiscal conditions and increasing vulnerability in some countries. Higher yields make it more expensive for governments to refinance debt and reduce the room available for future support. 17

What the 3.0% growth forecast means

The IMF’s 3.0% global growth projection for 2026 represents a relatively resilient baseline, not a guarantee that the shock has passed. The forecast is exposed to further energy disruption, inflation that proves difficult to contain, high debt and trade tensions. 47

Georgieva had earlier said there was no clear sign of a global slowdown from the Middle East conflict, while warning that the risks remained high. That distinction matters: current activity can hold up even as the conditions surrounding the forecast deteriorate. 16

AI investment is cushioning demand—but unevenly

Artificial-intelligence investment is another reason the global economy has remained stronger than expected. The boom, initially concentrated in the United States but spreading internationally, can support corporate earnings and consumer spending while driving construction of data centers and production of AI-related hardware. 313

But Georgieva has also emphasized that AI’s eventual economic effects contain “significant unknowns,” including possible financial-stability risks. The gains may be distributed unevenly, and developing economies face the most acute danger of falling behind if they lack access to AI infrastructure, capital, skills and supply chains.

That makes AI both a short-term growth tailwind and a long-term policy challenge. Investment can lift demand now, but it does not remove the energy shock or guarantee broad-based productivity gains.

What policymakers should do

Fiscal authorities

Governments need to rebuild fiscal credibility and restore room to respond to future shocks. That means placing public debt on sustainable paths, avoiding broad untargeted subsidies and focusing assistance on households most exposed to higher energy costs. Productive investment should be protected where possible, but rising bond yields make postponing fiscal adjustment more costly. 17

Central banks

Central banks face a difficult balance. They should not assume that an energy-price increase will remain a temporary, one-time shock if it begins to affect inflation expectations, wages or broader prices. Georgieva has urged policymakers to remain ready to tighten if second-round effects threaten to become entrenched, while avoiding unnecessary tightening if demand weakens sharply.

Energy and AI policy

The broader response is structural as well as monetary and fiscal. Governments can reduce vulnerability by strengthening energy resilience and diversifying supply routes. They also need to widen access to the infrastructure, skills and financing that allow more economies to participate in AI-led growth.

The central message

Georgieva’s warning is that the world economy has passed an important test, but not necessarily the underlying risk. Inventory releases, alternative supply, lower demand and AI investment have softened the initial blow from the Strait of Hormuz disruption. Yet those supports can weaken, while oil prices, inflation, debt-service costs and government-bond yields move higher.

For now, the IMF sees resilience. Its larger concern is whether that resilience can survive another energy shock—and whether the gains from the next growth engine, AI, will reach economies that currently have the fewest resources to keep up.