WASHINGTON, LONDON: The war in the Middle East has caused serious disruption to the economies of frontline countries, and is dimming the outlook for many economies that had just started to recover from previous crises, the International Monetary Fund warned.
In a blog published by the global lender’s top economists, the IMF said the war launched by US and Israeli strikes against Iran on Feb. 28 was causing a global, but asymmetric shock and leading to tighter financial conditions.
Oil prices rose and stock markets diverged Tuesday as uncertainty over the direction of the Middle East war dominated investor sentiment.
Brent North Sea crude for delivery in June — its most traded contract — rose 0.3 percent to $107.72 per barrel.
The international benchmark’s contract for May, which expires Tuesday, stood at $115.17 per barrel, up 2.1 percent.
Iran’s closure of the Strait of Hormuz and damage to regional infrastructure had caused the largest disruption to the global oil market in history, according to the International Energy Agency.
Much would depend on how long the war lasts, how far it spreads and how much damage it inflicts on infrastructure and supply chains.
The IMF said low-income countries were at particular risk of food insecurity, given higher food and fertilizer prices, and may need more external support at a time when many advanced economies were scaling back their international assistance.
“Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth,” the economists wrote.
If elevated energy and food prices persist, they will fuel inflation worldwide, the authors wrote, noting that sustained oil-price spikes have historically tended to push inflation higher and growth lower. The head of a maritime analyst group meanwhile warned in an interview with AFP that Asia is confronting a major energy crisis, as it faces the gravest fallout from the war.
“We think Asia will, for now, be the ones suffering the most,” Kpler president Jean Maynier told AFP at the company’s offices in Singapore.
He said the continent did not have enough energy resources of its own to cover the gap.
“It will not be enough in China; it will not be enough to cover in big countries like the Philippines or Indonesia. So it’s a real energy crisis.”
Asia’s main stock markets closed mixed as investors weighed a report indicating that US President Donald Trump was willing to end the Iran war even if the key Strait of Hormuz remained closed. But he also threatened to strike Iranian energy infrastructure should it not make a deal.
