The global economy faces a genuine global recession risk in 2026 if the current conflict involving the US, Israel, and Iran continues to drive energy prices higher, the International Monetary Fund (IMF) has warned.
In its latest World Economic Outlook report, the IMF detailed a “worst-case scenario” where energy price spikes in oil, gas, and food persist through next year. Under these conditions, global growth could plummet below 2% in 2026.
“This would mean a close call for a global recession, which has happened only four times since 1980,” the report stated, noting the most recent occurrence was during the COVID pandemic.
Global Recession Risk: Energy Markets on Edge
Energy prices have climbed sharply since the outbreak of war in late February 2026. The surge followed the effective closure of the Strait of Hormuz shipping route after peace talks between the US and Iran failed.
The IMF noted, “Once again, the global economy is threatened with being thrown off course—this time by the outbreak of war in the Middle East at the end of February 2026.”
Economists suggest a worldwide slowdown is likely if oil prices average $110 per barrel this year and reach $125 in 2027. Under these assumptions, the IMF economic forecast suggests inflation could hit 6% next year, potentially forcing central banks to raise interest rates further.
Humanitarian and Economic Toll
IMF chief economist Pierre-Olivier Gourinchas told the BBC that a prolonged conflict would trigger spiralling inflation, higher unemployment, and food insecurity. He warned that even if the fighting stopped today, the impact on supply would rival the 1970s oil crisis.
However, Gourinchas noted the world is now less dependent on fossil fuels, potentially cushioning the impact of the Iran conflict for average consumers.
Regional Outlook: UK and Gulf Nations
The UK is expected to be the hardest hit among advanced economies. The IMF cut its UK growth estimate for this year to 0.8%, down from 1.3%.
In the Gulf, the outlook is even more stark:
- Iran: Economy expected to shrink by 6.1% this year
- Qatar: Forecast to contract by 8.6% following strikes on the Ras Laffan LNG refinery.
- Iraq: Facing a projected economic hit of 6.8%.
US Treasury Secretary Scott Bessent told the BBC that “a small bit of economic pain for weeks” is a price worth paying to eliminate the threat of nuclear escalation. “I wonder what the hit to global GDP would be if a nuclear weapon hit London,” he remarked, adding that US and Israeli strikes had removed the “tail risk” of such an event.
While most nations face a slowdown, Russia has seen a slight boost due to higher oil prices. The IMF raised its Russian growth forecast to 1.1% for this year. This comes as US President Donald Trump briefly eased restrictions on Russian and Iranian exports in March to steady global prices before pivoting to a blockade of Iranian ports.
