MW The U.S.-Iran war dealt a big blow to the global economy. The IMF tells us how bad it could get.

By Jeffry Bartash

'The latest war illustrates how the international order remains under siege'

The global flow of oil has taken center stage in the conflict between the U.S. and Iran.

The U.S. and global economies were poised to accelerate this year before the Iran war. And now? A global watchdog warns of trouble if a peace deal proves elusive or the conflict worsens.

The International Monetary Fund downgraded its estimate of how fast the world economy will grow this year, just days after the U.S. and Iran failed to reach an agreement to end the six-week-old conflict.

"The world economy faces another difficult test," said Pierre-Olivier Gourinchas, economic counselor of the IMF, in its latest four-times-a-year forecast.

"The latest war illustrates how the international order remains under siege," he said. "Old alliances continue to fray [and] new conflicts are emerging."

For now, the IMF is hoping for the best - it has only tinkered with its forecast.

The agency predicts the world economy will grow 3.1% in 2026, instead of the 3.3% previously projected.

That's well below the 3.7% annual average growth over the 20 years stretching from 2000 to 2019.

Had the war not broken out, the IMF was planning to raise its forecast slightly.

The IMF trimmed its forecast for U.S. growth in 2026 to 2.3% from a previous 2.4%.

The situation could worsen, the IMF said. In a worst-case scenario, global growth could plunge to just 2% and inflation could soar to 6%.

"The duration and scale of the conflict and the time it will take for energy production and transit to normalize after the end of hostilities will determine the ultimate size of the shock to the global economy," Gourinchas said.

Since the war began on Feb. 28, oil prices have soared, reaching $113 a barrel last week from around $65 in late February.

Right now, prices are close to $98 a barrel - a 50% increase from pre-conflict levels.

The increase in oil prices is already feeding into higher inflation. The U.S. consumer-price index jumped almost 1.0% in March to mark the biggest increase in almost four years.

What could be especially dangerous to the global economy, the IMF said, is if inflation rose high enough to force central banks to raise interest rates this year instead of cutting them as they had hoped.

Typically, central banks, the Fed included, look past temporary increases in the price of energy on the assumption that the effects will be short-lived. Rate hikes alone can do little by themselves to lower energy prices.

If people believe that inflation will keep rising, the IMF said, the Fed and other central banks may have no choice but to raise rates to stave off a faster increase in prices.

Stubborn inflation and the higher borrowing costs required to fight it could do grave damage to the U.S. and global economies, the IMF said.

"Clearly, the downside risks are tremendous," Gourinchas said.

-Jeffry Bartash

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April 14, 2026 09:12 ET (13:12 GMT)

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