WASHINGTON – The International Monetary Fund (IMF) has issued a stark warning that escalating crude oil prices, driven by the ongoing Middle East conflict, are placing the global economy under significant strain, with a severe downturn possible if the war drags into 2027 .
Speaking at the Milken Institute conference on May 4, IMF Managing Director Kristalina Georgieva stated that the conflict has rendered the fund’s previous ‘reference scenario’—which assumed a brief war—obsolete . The combination of the prolonged conflict, oil forecasts holding at or above $100 per barrel, and rising inflationary pressures means the IMF’s ‘adverse scenario’ is now in effect .
“Now, if this continues into 2027 and we have oil prices of $125 more or less, then we have to expect a much worse outcome,” Georgieva warned. In that scenario, global inflation would climb sharply, and long-term expectations could ‘de-anchor’ . While long-term inflation expectations remain stable for now, she cautioned that financial conditions could tighten quickly if hostilities persist .
The conflict has effectively closed the Strait of Hormuz, a passage that previously handled 20% of global crude supply, causing physical shortages . Chevron CEO Mike Wirth noted that Asia would likely be the first region to see economies shrink as supply adjusts . The IMF is also tracking a 30%-40% spike in fertilizer prices, which is expected to push food costs up by 3% to 6% .
In a surprising market twist, gold prices fell sharply despite the chaos. In Pakistan, 24-karat gold dropped by Rs3,800 per tola, and global prices slipped $38 per ounce . Analysts attribute this to investors liquidating profitable assets to cover margin calls or raise liquidity amid the oil-driven market turmoil
