Prolonged war, renewed disruptions pose biggest risk to Middle East region, IMF says

The International Monetary Fund (IMF) warns that the prolonged conflict in the Middle East and any further disruptions to energy production, shipping routes, or critical infrastructure pose the greatest risk to economies in the region and Central Asia. Jihad Azour, the IMF director for the Middle East and Central Asia, stressed that the war is causing a highly uneven economic shock, particularly affecting the directly impacted countries.

The outlook hinges on how swiftly energy production and trade resumes, as well as countries' capacity to maintain macroeconomic stability. Pre-war reserves, alternate routes, demand adjustments, and significant inventory reduction have mitigated the energy shock caused by the US-Israeli-led strikes on Iran and Iran's subsequent closure of the Strait of Hormuz.

However, these buffers are limited, and further disruption could lead to more substantial price adjustments. The IMF projects a significant contraction of 1.3% in the Middle East, North Africa, and Pakistan region, with growth expected to rebound to 6.6% in 2027. Oil-exporting nations affected by the war will experience a substantial decline in 2026, followed by a sharp growth rebound in 2027 as energy production normalizes, though output is projected to remain below pre-war medium-term expectations.

Oil-importing countries in the region are anticipated to remain resilient, while the Caucasus and Central Asia region have coped with the shock effectively, with inflation projected to continue falling from elevated levels. The IMF anticipates global growth to decelerate to 5.2% in 2026 and 5% in 2027, down from 6.2% growth in 2025.

Policymakers, according to Azour, should prioritize price stability, rebuild fiscal buffers, and enhance their ability to withstand future shocks.