Georgieva Warns of Much Worse Outcomes If Iran War Lasts Until 2027

SadaNews - Kristalina Georgieva, the Managing Director of the International Monetary Fund, warned on Monday that inflation has already begun to rise and the global economy may face "much worse outcomes" if the war in the Middle East extends to 2027 and oil prices reach around $125 per barrel.

She stated that the continuation of the war means that the "baseline scenario" projected by the Fund, which assumes a short-term conflict, is no longer feasible.

This scenario also predicts a slight slowdown in growth to 3.1% and a limited increase in prices to 4.4%.

Georgieva added, "This possibility is diminishing day by day."

She reported that the continuation of the war, along with the expectation of oil prices reaching around $100 or more per barrel and the increasing inflationary pressures, all indicate that the Fund's "negative scenario" has indeed materialized.

Georgieva clarified at a conference hosted by the Milken Institute that long-term inflation expectations remain stable and that financial conditions have not faced constraints, while also confirming that this could change if the war continues.

She added, "If this situation persists until 2027 and oil prices reach around $125, we must expect a much worse outcome. Then we will see an increase in inflation."

Last month, the Fund issued three scenarios for global GDP growth in 2026 and 2027 amid extreme uncertainty due to the war in the Middle East, namely the "baseline forecasts", the "negative scenario", and the "severe scenario" which represents the worst case.

The "negative scenario" expects global growth to slow to 2.5% in 2026 with an inflation rate of 5.4%. Meanwhile, the "severe scenario" forecasts only 2% growth and an inflation rate of 5.8%.

In the same session, Mike Wirth, Chairman and CEO of Chevron, stated that an actual shortage in oil supplies will start to appear worldwide due to the closure of the Strait of Hormuz, through which 20% of global crude oil supplies passed before the war.

Wirth added that economies will begin to contract as demand is cut to align with scarce supply due to the continuing closure of the Strait because of the US-Israeli war with Iran.

Georgieva mentioned that the IMF is closely monitoring the slow impact of the conflict on supply chains, as fertilizer prices have already risen by 30 to 40%, which will raise food prices by 3 to 6%. Other sectors may also be affected.

She emphasized, saying, "What I want to stress is that this is extremely serious," expressing her concern that many decision-makers still act as if the crisis will be resolved within two months and take measures to mitigate its impact on consumers and businesses, which keeps oil demand high.

She added, "Do not make it worse. Everyone here knows that if supply decreases, demand will inevitably drop."