Mideast Conflict Threatens Global Recession, IMF Warns

WASHINGTON — The International Monetary Fund warned on Monday that a worsening conflict involving Iran could push the global economy toward recession, while also driving inflation higher and unsettling financial markets. The Washington-based institution issued the warning in its half-yearly update, where it also lowered its global growth outlook for 2026, pointing to the continuing economic fallout from the Middle East conflict.

The IMF said the risk becomes most acute under what it described as a “severe scenario,” where fighting drags on and energy prices remain elevated for an extended period. In that case, the Fund said the world would be facing a “close call for a global recession,” noting that a global recession has happened only four times since 1980.

The IMF’s message linked the potential downturn to the combination of prolonged disruption and persistently high energy costs, alongside the knock-on effects such conditions can have on prices and market stability.

Energy markets were already volatile around the time of the update. Oil prices briefly moved above $100 per barrel on Monday after talks between the U.S. and Iran stalled and after a U.S. blockade of the Strait of Hormuz. By Tuesday, Brent crude had eased to $98.5 per barrel, but the earlier spike underscored how quickly geopolitical developments can feed into global pricing benchmarks.

In its “reference forecast,” the IMF assumed that disruption from the conflict fades by mid-2026. Even under that baseline, the Fund projected global growth would slow to 3.1% in 2026 from 3.4% last year, representing a 0.1 percentage point downgrade to its prior view. The IMF also said inflation is expected to rise to 4.4%, highlighting the risk that higher energy costs and broader supply pressures can complicate the path back to price stability.

The update also showed uneven impacts across major economies. The United Kingdom received the largest downgrade among G7 countries, with its 2026 growth forecast cut by 0.5 percentage points to 0.8%. The IMF also projected UK inflation would climb to nearly 4%, indicating a more difficult mix of weaker growth and higher prices than previously expected.

For global markets and policymakers, the IMF’s update framed the Middle East conflict as a key variable shaping the 2026 outlook, particularly through energy prices and financial conditions. The Fund’s scenarios also left clear uncertainty around how long disruption could last and how persistent energy-price pressures might become, with the baseline hinging on disruption fading by mid-2026.