Global economy faces recession risk over Iran war, IMF warns

The global economy could slide toward recession if the ongoing US-Israel war with Iran persists and energy prices remain high, the International Monetary Fund has warned.

In its latest World Economic Outlook, the IMF said global growth could fall below 2% in 2026 under a worst-case scenario where oil, gas and food prices surge and stay elevated.

“This would mean a close call for a global recession which has happened only four times since 1980,” the IMF said, noting that the most recent episode occurred during the Covid-19 pandemic.

Energy markets have been volatile since the conflict began more than six weeks ago, with disruptions linked to tensions around the Strait of Hormuz, a critical global shipping route. Although oil prices have eased slightly to about $98.85 per barrel, they had earlier climbed close to $120 during the crisis.

The IMF warned that if the conflict intensifies, oil prices could average $110 per barrel this year and rise to $125 by 2027, fuelling inflation and slowing economic growth worldwide.

“Once again, the global economy is threatened with being thrown off course,” the IMF said, pointing to the war as a major new risk.

Pierre-Olivier Gourinchas, the chief economist of the International Monetary Fund, said a prolonged conflict would trigger “spiralling inflation,” increase unemployment and worsen food insecurity in vulnerable countries.

He added that even if the war ended immediately, the shock to oil supply could rival the impact of the 1970s oil crisis, when an embargo by Arab oil producers disrupted global markets. However, he noted that economies today are less dependent on fossil fuels, which could soften the blow.

If the conflict is resolved quickly and energy flows normalise, the IMF projects global growth of 3.1% in 2026, slightly below earlier forecasts of 3.3%, and 3.2% the following year.

Nigeria Stable

For Nigeria, the outlook remains relatively stable but exposed to external shocks.

The IMF projects that Africa’s largest economy will grow by 4.0% in 2025, 4.1% in 2026 and 4.3% in 2027. However, rising global oil prices, while boosting government revenues, has also increased domestic fuel costs and inflation, as the country’s energy sector responds to global market fluctuations following removal of subsidies in 2023.

Higher energy costs are feeding into food prices, transport fares and overall living expenses, already eroding household purchasing power.

Globally, the IMF said the economic impact of the conflict would vary widely.

Among advanced economies, the United Kingdom is expected to be one of the hardest hit by rising energy costs, with growth this year revised down to 0.8% from an earlier forecast of 1.3%.

In the Middle East, oil-exporting countries face mixed outcomes. Iran’s economy is projected to shrink by 6.1% this year before recovering to 3.2% in 2027 if the conflict ends soon. Qatar, a major liquefied natural gas exporter, is forecast to contract by 8.6% in 2026 after its key energy infrastructure came under attack, before rebounding the following year.

Neighbouring Iraq is also expected to see economic contraction this year, followed by a strong recovery in 2027.

The IMF noted that countries’ resilience will depend on factors such as damage to energy infrastructure, dependence on the Strait of Hormuz and access to alternative export routes.

Meanwhile, some economies may benefit from higher oil prices. Russia’s growth forecast has been revised upward to 1.1% this year and next, supported by stronger energy revenues.

Despite these variations, the IMF stressed that prolonged disruption poses a broad threat to global stability, particularly for developing countries already facing high debt and limited fiscal space.

If energy and food prices remain elevated for an extended period, the Fund warned, the risk of recession will rise—along with the likelihood of deeper economic hardship across much of the world.