The global economy has less capacity to cushion the blow from a reduction in energy supplies moving through the Strait of Hormuz as the U.S. and Iran resume hostilities, the International Monetary Fund said Wednesday.

The impact of the conflict on the global economy has been smaller than feared when it began in late February, largely because energy prices didn't rise as sharply as many economists anticipated.

In a blog post, the Fund said that reflected the availability of buffers in the form of increased supplies from other oil producers and drawdowns from reserves, as well as the ability of businesses and households to quickly switch to alternative sources.

But those buffers have limits that would be tested by an extended closure of the strait, the IMF warned.

"What cushioned the initial blow this time is that energy markets had room to maneuver and absorb it," the Fund said. "As tensions flare again in the Strait of Hormuz, that room is now smaller and shrinking further as spare capacity has been deployed, demand has compressed, and inventories have been drawn down."

The IMF last week forecast the global economy would grow by 3% in 2026, down from the 3.1% projected in April and 3.5% in 2025. However, it warned that growth could turn out to be weaker if the conflict in the Middle East were to escalate.

Since then, the conflict has escalated. U.S. strikes that restarted last week in response to Iranian attacks on shipping continued Tuesday, while a U.S. blockade of Iranian ports and shipping resumed Tuesday afternoon.

The breakdown of a ceasefire agreed on in June and the consequent delay in fully reopening the strait have pushed oil prices higher, but not yet to the levels reached at the start of the war.

"A quick supply recovery is essential to avoid further damage to the global economy," the Fund said.

Between the start of March and the end of May, the IMF calculates that the closure of the strait removed more than 1.1 billion barrels of crude from the energy market, the equivalent to about 10 days of global consumption.

That was a larger reduction than those seen during the 1973 oil shock, the war between Iran and Iraq in the 1980s, and the Gulf War in the early 1990s.

However, the IMF said oil prices didn't rise as sharply as would have been expected based on those precedents, limiting the damage to the global economy.

Its economists calculate that the initial rise in prices spurred a decline in demand of 5.8 million barrels a day, while increased production from the U.S., Venezuela, Guyana, and Russia added 1.7 million barrels a day to supply. That left a shortfall of roughly 4 million barrels a day that was met out of reserves held in China and elsewhere.

"Energy markets' flexibility and prompt policy actions bought the global economy time," the Fund said. "An enduring U.S.-Iran agreement would create an opening to restore supply."

But while those reserves helped cushion the blow to the world economy, they will need to be rebuilt ahead of a fresh interruption to supply.

"Unless inventories are replenished, the world will start from a weaker position when the next shock comes," the IMF said.

The Fund also said moving to alternative sources of energy, including renewables, would help reduce the global economy's vulnerability to future disruptions to key oil routes.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

July 15, 2026 06:00 ET (10:00 GMT)

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