The disruption in the supply of cooking gas (LPG) and petrol is one aspect of the economic crisis caused by the one-sided war launched by the US-Israel combine against Iran. The bigger picture of the global economic dislocation has been drawn by the International Monetary Fund (IMF) which says the world will be plagued by an oil shortfall this year no matter how soon the war is resolved. It has cautioned governments against overspending to cushion consumers from high energy prices as public finances were already strained before the war started. Even if an immediate resolution of the conflict does take place, it still would not help matters, and governments will be forced to grapple with high energy prices and shortages. IMF chief economist Pierre-Olivier Gourinchas painted a grim picture by asserting that if everything stops now and the Strait of Hormuz opens up, the oil shortfall will still continue for the rest of the year.
According to one estimate, global oil supply plummeted by 10.1 million barrels a day in March, regarded as the largest disruption in history. These are simply not figures, but they highlight the dramatic change in the outlook for global energy markets and the wider impact on nations’ economy caused by the war. Before the conflict started, the global economy was, in fact, performing better than expected with growth on track to be revised upward this year, the IMF said in its latest report. The optimism stemmed, explained Gourinchas, from the fact that the uncertainty over US tariffs had been reduced and there was the artificial intelligence investment boom.
Also Read
However, with the outbreak of the war in the Middle East, the global outlook suddenly darkened, and the energy crisis has deepened on an unprecedented scale, warned the World Economic Outlook report. The IMF now expects global growth of 3.1 per cent in 2026, a 0.2 percentage point downgrade from its January forecast. Even then the projection is based on the assumption that the war will be over very soon.
Global inflation is also rising to 4.4 per cent this year. If the war continues oil and natural gas prices will spike causing global economic growth to shrink further. The scenario projected by the IMF is alarming, indeed, as it fears there could be a close call for a global recession which is defined as economic growth below 2 per cent. The phenomenon was experienced only four times since 1980. The IMF prediction has been ratified by economists and organisations, including the Asian Development Bank (ADB) and the United Nations, cautioning against an alarming economic toll in case the war in Iran turns out to be lengthy. This is the reason why US President Donald Trump keeps harping that the war would be over very soon despite his war-mongering rhetoric which he has to resort to in order to prevent the Republicans from a disaster in the November mid-term poll.
The warnings are no mere academic exercise but they portray the stark reality of the situation caused by the war. The closure of the Strait of Hormuz has severely disrupted one-fifth of the world’s crude oil supply and a considerable amount of commodities such as natural gas, helium and fertilizer. The short supply of fertilizers is going to hit Indian agriculture production in the kharif season as it heavily depends on import. The situation is so bleak that Australian Finance Minister Jim Chalmers has warned that the global economy is faced with a really dangerous time because of the war in the Middle East even though his country is better placed and better prepared to tackle the situation than many others. But, he sounded the alarm bell nonetheless saying that his country would not be spared the fallout from the economic shock. The sooner Trump and all those who embraced Israeli Prime Minister Benjamin Netanyahu realize how he misled them by starting the war with Iran, the better it is for the world economy. Trump is already paying a heavy political cost in the form of a split in his MAGA support base for reneging on his electoral pledge given to his main constituency that he would abandon war and work only for the economic wellbeing for his country, encapsulated in the slogan of “America First.”
The economic dislocation he has caused by the unilateral declaration of this war should prompt him to tone down his war rhetoric and arrogance of America’s military might. That same arrogance, observed in those few other leaders who also willingly joined hands with Netanyahu, has brought immense grief to their countries. It may increase further.
