The International Monetary Fund (IMF) has warned that a prolonged war in the Middle East and renewed disruptions to energy supplies, shipping routes and critical infrastructure pose the biggest risks to regional economies, as governments face mounting pressure from higher costs and economic uncertainty.
Jihad Azour, the IMF’s director for the Middle East and Central Asia, said the conflict was creating an uneven economic shock, with countries directly affected by the war facing particularly severe pressure.
“The outlook depends critically on how quickly energy production and trade normalize, and on countries’ ability to preserve macroeconomic stability,” Azour told reporters during the annual meetings of the IMF and World Bank in Bangkok on Thursday.
Energy Disruptions Threaten Economic Stability
The conflict, involving US and Israeli attacks on Iran and Tehran’s subsequent closure of the Strait of Hormuz, has disrupted energy markets and raised concerns about the security of international trade routes.
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According to Azour, several factors have helped cushion the initial shock, including fiscal surpluses accumulated before the war, alternative shipping routes, adjustments in demand and the use of existing energy inventories.
However, these measures may not provide lasting protection if disruptions continue.
“These buffers bought time, but they are finite. Inventories are lower, spare capacity is tighter, and renewed disruption could generate much larger price adjustments,” Azour said.
The Strait of Hormuz is a critical route for global energy shipments. Further restrictions on traffic through the waterway could intensify supply pressures, increase energy prices and raise transportation costs, creating additional challenges for governments and businesses across the region.
IMF Forecasts Regional Economic Contraction
The IMF projects that the Middle East, North Africa and Pakistan region will contract by 1.3% in 2026, following economic growth of 3.3% in 2025.
The lender expects a strong but uneven recovery in 2027, with growth reaching 6.6% as energy production and trade conditions improve.
Oil-exporting economies directly affected by the conflict are expected to experience significant contractions in 2026, followed by a sharp rebound in 2027 as energy production normalizes. However, their output is likely to remain below the levels anticipated in pre-war medium-term projections.
The outlook is more resilient for oil-importing economies across the region, which the IMF expects to withstand the shock comparatively well.
The differing projections reflect the uneven distribution of the conflict’s economic costs. Countries dependent on energy exports face disruptions to production and revenue, while import-dependent economies remain exposed to higher energy prices, transportation costs and inflationary pressures.
Central Asia Faces Slower Growth
The Caucasus and Central Asia have weathered the economic shock relatively well, according to Azour, with inflation expected to continue declining from elevated levels.
Nevertheless, the IMF forecasts that growth across the region will slow to 5.2% in 2026 and 5% in 2027, compared with 6.2% in 2025.
The projections suggest that even economies less directly exposed to the fighting could experience slower growth as regional trade, energy markets and broader economic conditions remain uncertain.
Governments Urged to Prepare for Further Shocks
Azour urged policymakers to prioritize price stability, rebuild fiscal buffers and strengthen their capacity to withstand future economic disruptions.
The warning highlights the challenge facing governments as they attempt to contain inflation and protect economic growth while managing the consequences of an unpredictable conflict.
The duration of the war and the pace at which energy production and trade recover will remain critical factors shaping the region’s economic outlook.
If disruptions intensify or persist, governments could face renewed pressure on public finances, while businesses and households may bear higher energy and transportation costs. For now, the IMF’s projections point to a difficult 2026, followed by a recovery in 2027 whose strength will depend heavily on the restoration of regional economic activity.
With information from Reuters.
