IMF official says buffers against Iran war price shock are narrowing

The International Monetary Fund's regional director, Jihad Azour, stated on Thursday that the economic impact of the ongoing Iran war has been limited by prewar buffers. However, he cautioned that the region's outlook remains highly uncertain due to potential threats of further disruptions. The closure of the Strait of Hormuz, through which one fifth of the world's energy supplies traveled prior to the war, has caused significant market turbulence.

Iranian attacks on vessels in the waterway and key sites in neighboring countries have also contributed to this instability. Although the price of Brent crude oil has risen 47% above its prewar levels, it has yet to reach the feared $200-a-barrel mark. The IMF maintained its global growth projection for 2026 at 3.1% and raised its 2027 forecast to 3.4%.

The fund's involvement in 2026 has been raised to 4.7% from its previous estimate. Azour mentioned that the impact of the war was less severe than initially anticipated, as alternative supply routes were explored by the UAE and Saudi Arabia, and the International Energy Agency agreed to release up to 425 million barrels of reserve stocks.

Output from non-Gulf producers and a reduction in energy demand have also helped mitigate the war's effects. However, Azour emphasized that these buffers are limited and that renewed disruptions could result in more significant price adjustments. Iranian attacks in the Strait of Hormuz continue, with 12 tankers attacked in the past week alone.

The IMF forecasts economic contractions of 11.3% for Bahrain, 16% for Iraq, 16.7% for Kuwait, 15.6% for Qatar, 3.3% for Saudi Arabia, and 3.9% for the UAE in 2023. Growth is expected to rebound in 2027, but output will still be below pre-war projections. The IMF urged the region's economies to prioritize price stability, rebuild fiscal buffers, and build capacity to withstand future shocks.