The International Monetary Fund has published a detailed scenario analysis warning that the Middle East war could cut global growth in half under worst-case conditions, releasing the findings as part of its World Economic Outlook during the Spring Meetings in Washington.
The global economy entered 2026 with growth projected at 3.4 percent, but the conflict — which has closed the Strait of Hormuz and damaged critical energy infrastructure — has fundamentally altered the trajectory.
Three scenarios mapped
Under the IMF’s reference scenario, assuming a short-lived conflict and a 19 percent energy price increase, global growth slows to 3.1 percent while inflation rises to 4.4 percent, reversing recent disinflation gains.
An adverse scenario — involving a longer Hormuz shutdown and greater infrastructure damage — would push growth down to 2.5 percent with inflation hitting 5.4 percent.
The severe scenario, where energy disruptions extend into 2027 and financial conditions tighten sharply, would see global growth collapse to just 2 percent with inflation exceeding 6 percent — effectively a global recession.
Energy-importing nations hardest hit
The IMF warned the shock is transmitting through three channels: higher commodity prices creating a negative supply shock, potential wage-price spirals, and tightening financial conditions dampening demand.
Energy-importing economies face the steepest exposure, with low-income and developing countries — particularly those with limited fiscal buffers — likely to be hit hardest. Gulf energy exporters also face losses from damaged infrastructure and export disruptions.
Despite reports of a temporary ceasefire, the IMF cautioned that “some damage is already done” and downside risks remain elevated.
For Sri Lanka, an energy-importing nation already navigating an IMF programme with constrained fiscal space, all three scenarios carry significant risk — compounding the dual pressure of $100-plus oil prices and the ongoing Hormuz blockade.
