IMF Chief Warns Iran War Will Leave Lasting Damage on Global Economy Despite Potential Peace

The International Monetary Fund’s managing director, Kristalina Georgieva, has issued a blunt assessment of the economic fallout from the Iran war, saying the conflict will leave permanent scars on the global economy. Speaking ahead of the IMF’s annual spring meetings in Washington, Georgieva emphasized that even the most optimistic scenarios predict slower growth and lasting damage.

Before the war broke out six weeks ago, the IMF had been preparing to upgrade its global growth forecast for 2026, buoyed by strong momentum from technology investments and stable financial markets. Instead, the conflict has forced a downgrade, with no “neat and clean return to the status quo,” Georgieva said.

The war’s impact is multifaceted: infrastructure destruction, supply chain disruptions, and shaken confidence are all contributing to a slowdown. A key concern is the instability around the Strait of Hormuz, a vital route for global oil shipments. The uncertainty over shipping and damaged oil and gas facilities means energy supplies remain volatile, pushing up prices and rattling markets.

Georgieva highlighted that poorer countries, net oil importers, and small island nations will bear the brunt of the economic pain. She warned against protectionist responses like export bans or price controls, which would only worsen global conditions. Instead, governments should focus on targeted support for the most vulnerable, avoiding broad tax cuts or energy subsidies that could fuel inflation and deepen fiscal strains.

Central banks face a delicate balancing act, Georgieva said, needing to keep interest rates steady while remaining ready to act against inflation. She urged countries to use their limited fiscal resources wisely and to rebuild financial resilience after this shock.

The warning from the IMF comes as Bank of England governor Andrew Bailey echoed concerns about the “very big shock” to the global economy from the Middle East conflict. Bailey noted the heightened market volatility and the ongoing risks as the situation remains unstable.

This economic forecast underscores the broader consequences of the Trump administration’s foreign policy approach, which has contributed to escalating tensions with Iran. The conflict’s ripple effects threaten to undermine global growth and deepen inequalities, making clear that the costs of this manufactured war extend far beyond the battlefield.