Head of IMF says Iran war will permanently scar global economy even if peace is reached

Defence affairs - Def-Geopolitics

Kristalina Georgieva says even ‘most hopeful scenario’ will lead to growth downgrade and cause permanent hit to living standards.

The head of the International Monetary Fund has warned that the Iran war will permanently scar the global economy even if a durable peace deal in the Middle East can be reached.

In a speech delivered as the ceasefire in the conflict threatened to unravel, Kristalina Georgieva said the “scarring effects” caused by the war to date would mean slower global growth this year than first anticipated.

Had it not been for the outbreak of the conflict six weeks ago, the IMF would have upgraded its global growth outlook for 2026, Georgieva said. “But now, even our most hopeful scenario involves a growth downgrade. Even in a best case, there will be no neat and clean return to the status quo.”

Six weeks into the conflict, the fate of the conditional ceasefire announced late on Tuesday appears at risk as Washington and Tehran disagree on what was agreed.

The global oil price rose on Thursday amid volatile conditions in global financial markets, underscoring fears over continued disruption to energy supplies through the strait of Hormuz that are key for fuelling the world economy.

In a speech intended as a curtain-raiser for the IMF’s annual spring meetings in Washington next week, Georgieva said there was heightened uncertainty over the depth of the global slowdown triggered by the war.

However, every scenario the body has produced for its flagship World Economic Outlook report – to be published on Tuesday – shows a permanent hit to living standards.

Last autumn the IMF had forecast global growth of 3.1% in 2026, in a modest slowdown from growth of 3.2% in 2025, as an AI-driven investment boom helped to power “unexpected resilience” despite Donald Trump’s tariff wars.

Georgieva said the world economy had entered the Iran war with “considerable momentum” fuelled by tech investment and supportive conditions in financial markets.

However, she said infrastructure damage, supply disruptions, losses of confidence, and other scarring effects linked to the war would inflict losses for the global economy regardless of whether a peace deal could be reached.

Highlighting uncertainty over shipping in and out of the Gulf, and the amount of time it would take to restore production at bombed-out oil and gas facilities across the region, the IMF’s managing director said the world was braced for continuing disruption.