The International Monetary Fund warned on Tuesday that a further escalation in the Iran war could push the world toward recession, send inflation higher and trigger a sharp backlash in financial markets, even after oil prices eased from Monday’s spike. Brent crude slipped 0.9% to $98.5 a barrel on hopes of more peace talks, but the IMF said the damage from the conflict was already showing up in its latest growth forecasts.
In its half-yearly update, the fund cut its growth forecasts for 2026 on the basis of the war’s impact so far. Pierre-Olivier Gourinchas said: “Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated.”
The IMF said that in a severe scenario involving a drawn-out war and persistently higher energy prices, the world would face a close call for a global recession. It said net energy importers and developing nations would take the biggest hit, and that disruption to the world economy would fade by mid-2026 in its reference forecast.
The warning lands as finance ministers and central bank heads gather in Washington for the spring meetings of the IMF and the World Bank, with energy markets still unsettled after weekend talks between the United States and Iran ended in stalemate and a US blockade of the Strait of Hormuz began. Oil prices had jumped back above $100 a barrel on Monday amid choppy trading, underscoring how quickly the conflict can feed into the global economic outlook 2026.
Britain emerged as the biggest loser in the fund’s figures for advanced economies. The IMF said the UK would suffer the sharpest growth downgrade in the G7 this year and would have the joint highest inflation rate in the group. It cut UK growth by 0.5 percentage points to 0.8% and warned inflation would climb to almost 4%.
By contrast, the fund lowered its forecast for US growth in 2026 by just 0.1 percentage points to 2.3%, a much smaller adjustment than for the UK. Rachel Reeves, who was due to arrive in Washington late on Tuesday for the meetings, said the war in Iran was not Britain’s war but would still come at a cost. “These are not costs I wanted, but they are costs we will have to respond to,” she said, adding that her approach would be responsive to a changing world and responsible in the national interest, keeping inflation and interest rates in check to protect households and businesses.
The IMF has now made clear the conflict is no longer just a regional security shock. It is a growing economic one, with the hardest effects landing first on countries that rely on imported energy and on developing economies with the least room to absorb another surge in prices.
