IMF Warns of Deepening Global Shock After Hormuz Crisis

COLOMBO (News 1st); The global economy is facing a broad and deep shock as disruptions linked to the middle east war severely affect energy markets, commodity supply chains, and financial stability, according to Jihad Azour, Director of the International Monetary Fund’s Middle East and Central Asia Department.

At the center of the shock is energy, following severe disruptions in the Strait of Hormuz, a critical global trade artery through which roughly one-fifth of the world’s oil supply and about one-quarter of global liquefied natural gas trade normally pass. Strikes and precautionary shutdowns have pushed the strait close to a standstill, cutting global oil and gas output by an estimated 13 million barrels per day.

As a result, Brent crude prices surged above $100 per barrel, peaking at $118 before easing after the announcement of a ceasefire. European gas prices climbed by approximately 60 percent, exceeding the price spike seen after Russia’s invasion of Ukraine.

The disruption has extended well beyond oil and gas. Roughly one-third of global fertilizer trade transits the Strait of Hormuz, while Gulf Cooperation Council countries account for more than 40 percent of global sulfur exports and around 20 percent of ammonia and nitrogen fertilizer exports. Urea futures prices have risen by about 30 percent, with aluminum and phosphate prices increasing by approximately 20 percent.

These price increases are feeding directly into higher food costs, placing significant pressure on some of the world’s most vulnerable populations. The impact is particularly severe in food-import-dependent economies across the Middle East, North Africa, Pakistan and Afghanistan region, South Asia, and Sub-Saharan Africa.

Services sectors have also been hit hard. Air traffic has collapsed, maritime insurance premiums have surged, shipping routes have lengthened, and logistics chains have weakened. Financial markets have reacted sharply, with wider sovereign spreads, capital outflows, and higher borrowing costs, especially in countries where fiscal and monetary policy space was already constrained.

Taken together, Azour said, the shock is wide-ranging, deep, and still unfolding.

Among conflict-affected oil-exporting economies, five out of eight are now projected to contract in 2026.

For oil-importing economies, vulnerabilities are intensifying as higher energy costs coincide with weaker remittance inflows from Gulf-based workers and tighter financial conditions. Sovereign spreads in several of these countries widened by 50 to 100 basis points during March, before returning to pre-conflict levels following the ceasefire.

In response, the IMF is urging what it calls “disciplined agility” in policy actions.

Governments are advised to allow automatic stabilizers to function and to deploy targeted, temporary support for affected households, financed through reprioritized spending rather than increased deficits.

Azour cautioned strongly against reinstating or expanding broad fuel subsidies, warning that untargeted measures would absorb scarce policy space while delivering limited benefits to those most in need.

Central banks facing persistent inflation, particularly where monetary policy remains accommodative, should maintain or strengthen restrictive stances. Financial supervisors, meanwhile, are urged to intensify oversight of liquidity and foreign-currency mismatches and to stand ready to deploy financial backstops where necessary.