o the ongoing conflict, the world economy continues to feel the strain, even as gas prices show some signs of decline.
Economies around the world are being affected by Iran’s closure of the Strait of Hormuz.
This critical shipping route transports nearly 20% of the world’s fuel, along with significant quantities of fertiliser.
Speaking during the curtain raiser for the 2026 Spring Meetings of the International Monetary Fund and the World Bank, Managing Director Kristalina Georgieva acknowledged that the global economy is once again being tested by the conflict in the Middle East despite the currency fire.
“Next week we would welcome ministers and central bank governors to our Spring Meetings, and our focus will be on how best to weather this latest shock and ease the pain on economies and on people. This requires understanding the nature of the shock, the channels through which it affects the economy, the size of the impact and the policies that can mitigate it. So what hit us? A supply shock that is large, with the world’s daily oil flow cut by some 13% and its LNG flow by some 20%. It is global, with all of us now paying more for energy and with supply chains disrupted around the world. And it is asymmetric, with its impact depending on proximity to the conflict, whether you are an energy exporter or importer in your policy space. As always, a negative supply shock pushes prices up. As a point of reference, Brent jumped from $72 per barrel on the eve of hostilities to a peak of $120. Thankfully, oil prices have fallen, but they remain much higher than before the war.
And many countries are paying a high premium for access to precious supplies.”
Small states, particularly in the Caribbean and Pacific, are among the hardest hit by the disruption.
Rising fuel costs continue to create bottlenecks for governments already facing economic pressures.
“Spare a thought for the Pacific island nations at the end of a long supply chain, wondering if fuel still reaches them in the wake of such severe disruption. The supply interruptions have had, and will for some time continue to have, ripple effects, such as oil refineries disruptions because of the need to maintain minimum flow rates, with warning lights flashing in many far-flung places. Shortages of refined products, including diesel.”
The MD also pointed to ongoing challenges within the global supply chain, warning that these disruptions are worsening food insecurity in vulnerable regions.
“Over $360 million, with a problem that is potentially going to get worse over time because of higher fertiliser prices. And supply chain disruptions given industrial dependencies on sulphur, on helium for silicon chip making and MRI imaging, and NAFTA for plastics. The second question is, how can this shock play out? Through three main channels. First, the price impact and supply shortages. Higher prices for key inputs feed into many consumer goods, lifting inflation. This, coupled with shortages, reduces demand by a brute force.”
Inflation and its lingering effects were also highlighted as key concerns for policymakers.
“Second channel, inflation expectations. This can break anchor and ignite a costly inflation process. Here is the distribution of near-term inflation forecast for the US. Notice how the curve has moved to the right, indicating higher short-run inflation expectations. And here is the curve for the euro area. It also moves to the right, and also it widens, indicating higher uncertainty. Now, there is some good news. Fortunately, long-term expectations have not budged. Very good and very important. Third channel, financial conditions. From a highly supportive starting point, they tightened in an orderly manner. Emerging-market bond spreads widened substantially, equity prices have adjusted, and the dollar appreciated. We have been here before in the 70s and earlier this decade, and we know eventually a significant part of the shock will dissipate, leaving us in a new equilibrium. Supply recovers, demand adjusts, new capacity comes on stream, energy efficiency rises.”
The 2026 spring meetings will be held in Washington, D.C., at the headquarters of both the IMF and the World Bank.
