The global economy is at risk of recession if the US-Israel war with Iran continues and high energy prices persist, the International Monetary Fund (IMF) has warned.
In its World Economic Outlook report, the IMF said in a worst-case scenario – where oil, gas and food prices spike and remain high this year and next – global growth could fall below 2% in 2026.
“This would mean a close call for a global recession which has happened only four times since 1980,” it said, most recently during the Covid pandemic.
US Treasury Secretary Scott Bessent told the “a small bit of economic pain” was a price worth paying to eliminate the risk of Iran striking Western capitals with nuclear weapons.
Energy prices have soared since the war began more than six weeks ago after the key Strait of Hormuz shipping route effectively closed and peace talks between the US and Iran failed.
The IMF said: “Once again, the global economy is threatened with being thrown off course – this time by the outbreak of war in the Middle East at the end of February 2026.”
It said the most severe conditions that could lead to a worldwide slowdown would include oil prices reaching an average $110 per barrel this year and hitting $125 in 2027.
Based on these assumptions, the IMF said inflation could reach as much as 6% next year. This could force central banks to increase interest rates to slow the pace of price rises.
