The IMF warns that prolonged disruption in the Gulf could slow growth, revive inflation and force central banks into a harder policy choice

The global economy is facing a renewed stress test as energy disruption linked to the Middle East conflict threatens to slow growth and keep inflation higher for longer.

The International Monetary Fund has warned that a deeper or more prolonged conflict could produce a sharply worse economic outcome, with global growth potentially falling to 2.5% in 2026 and headline inflation rising to 5.4%. In a severe scenario, the IMF said growth could fall even closer to 2%, while inflation could approach 5.8%, creating a difficult mix of weaker activity and persistent price pressure.

The central concern is energy. A prolonged disruption around the Strait of Hormuz, one of the world’s most important oil transit routes, would raise costs across transport, manufacturing, agriculture and household consumption. Chevron Chairman and CEO Mike Wirth warned that physical oil shortages could begin appearing globally if access through the Strait remained blocked, a route that carried around 20% of global crude supply before the war.

The shock is already forcing policymakers to rethink their outlooks. Australia’s central bank has raised its inflation forecasts and cut growth expectations, citing the impact of higher oil prices. The Reserve Bank of Australia now expects headline inflation to peak near 5%, while growth is projected to slow to 1.3% by the end of 2026.

For central banks, the problem is unusually complex. If they raise interest rates to contain inflation, they risk deepening an economic slowdown. If they cut rates too soon, higher energy costs could spread into wages, services and consumer expectations. That dilemma is especially sharp because many households are still recovering from the previous inflation cycle.

Emerging markets have so far shown surprising resilience. Reuters reported that emerging-market stocks have reached record highs and bond spreads have tightened despite the energy shock. But that strength may prove fragile if fuel costs remain elevated, currencies weaken, or investors begin to price in a longer period of global instability.

Food prices are another concern. Higher fuel and fertilizer costs can move quickly through agricultural supply chains, increasing pressure on poorer countries and lower-income households. The IMF has warned that supply-chain disruptions are already being watched closely because they can turn an energy shock into a broader cost-of-living problem.

The broader lesson is that the global economy has less room for error than it did a year ago. Public debt is high, consumers remain price-sensitive and governments have limited fiscal space to cushion another shock. Even economies with strong domestic demand, such as India, are now being judged partly by their ability to manage energy security during a period of global oil turmoil.

The next phase will depend on whether energy flows stabilize quickly or whether the disruption becomes a prolonged drag on global trade and confidence. For now, the IMF’s message is clear: the world economy may avoid recession, but it is moving through a more dangerous inflationary environment, where every barrel of oil carries political as well as economic weight.