IMF sees global oil shortfall this year and warns Iran war could tip world into recession

By Hanna Ziady, Stephanie Yang, CNN

London/Hong Kong (CNN) — The International Monetary Fund says the world will suffer an oil shortfall this year – even if the war with Iran were resolved this week – becoming the latest major economic body to warn of severe likely and potential impacts of the conflict.

The fund also warned Wednesday that governments should resist overspending to shield consumers from high energy prices, noting that public finances were “already strained” before the war started and should not be pushed “closer to the brink.”

Even a quick resolution to the war could leave governments grappling with high energy prices and shortages.

“If everything were to stop tonight and, starting tomorrow, we move towards reopening the Strait (of Hormuz)… we would still be looking at an oil shortfall for the year,” IMF chief economist Pierre-Olivier Gourinchas told CNN in an interview on Quest Means Business Tuesday.

Global oil supply plummeted by 10.1 million barrels a day in March, “the largest disruption in history,” the International Energy Agency said Tuesday in its latest oil market report.

Although the IEA doesn’t see an oil shortfall this year, it has sharpy downgraded its forecast for global oil supply, which it now expects to exceed demand by just 441,000 barrels a day, versus 2.4 million barrels a day in its March report.

The figures highlight the dramatic change in the outlook for global energy markets and the wider economy as a result of the war. Before the conflict, the global economy was performing better than expected, with growth on track to be revised upward this year, according to the IMF.

“There was a lot of momentum,” in the global economy, Gourinchas said, citing reduced uncertainty over US tariffs and the artificial intelligence “investment boom.”

But since the war started, “the global outlook has abruptly darkened,” he wrote in the fund’s latest World Economic Outlook report, published Tuesday. The conflict could still cause a global “energy crisis on an unprecedented scale,” he added.

The IMF now expects global growth of 3.1% in 2026, a 0.2 percentage point downgrade from its January forecast. This modest revision assumes that the war will be “relatively short-lived,” it said. Global inflation is also seen rising to 4.4% this year.

However, the fund also outlined two scenarios for a longer-lasting conflict. Under the more severe of these – in which oil and natural gas prices spike 100-200% relative to January and stay at that level into 2027 – global economic growth would come in at only 2% this year.

That would amount to “a close call for a global recession,” defined as economic growth below 2%, which has happened only four times since 1980, the IMF said.

‘Very dangerous time for the world’

The IMF prediction is the latest from a growing cohort of economists and organizations, including the Asian Development Bank and the United Nations, warning of the economic toll of a lengthy war in Iran.

Those warnings lay out the increasingly stark consequences of a war the United States and Israel embarked on, including in friendly or allied nations, which now face the prospect of economic chaos.

Iran has effectively closed the Strait of Hormuz, stopping about one-fifth of the world’s crude oil supply, as well as considerable supplies of other commodities like natural gas, helium and fertilizer. Some countries are starting to run low on fuel supplies, particularly in the Asia-Pacific region, and prices for goods made with petroleum products are starting to climb.

On Wednesday, Australian finance minister Jim Chalmers warned that the global economy faced a “really dangerous time” as a result of the Middle East war.

“Australia is better-placed and better-prepared than a number of other countries, but we won’t be spared the fallout from this very substantial economic shock,” he told reporters.

The Australian government expects higher inflation and slower economic growth this year. “Australians didn’t choose the circumstances of this war in the Middle East, but they are paying a hefty price for it,” Chalmers said.

Australia has cut gasoline and diesel taxes in half for three months to provide some relief to consumers experiencing financial hardship as a result of a surge in fuel prices.

Chalmers was traveling to Washington for a G20 meeting of finance ministers this week, as well as meetings with the IMF and World Bank, during which he said he would join other officials in calling for an end to the war.

“From an economic point of view, the end of the war can’t come soon enough,” he said, adding that the consequences would be felt “for some time.”

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Olesya Dmitracova and Richard Quest contributed reporting.