Oil prices remain at $100 a barrel and Brent crude futures point to high prices through 2027. Yet Kristalina Georgieva, the International Monetary Fund’s managing director, said in Singapore on Wednesday, 7 October that the energy shock caused by the US-Iran conflict was large but contained so far.
That containment may prove temporary. Speaking ahead of the IMF-World Bank Annual Meetings in Bangkok the following week, Georgieva warned: 'Even if the war in the Gulf were to end soon, the problem of high energy prices will likely persist for some time.'
The IMF’s July forecast had assumed that the Strait of Hormuz would begin reopening in mid-July, that conditions would return to normal by March 2027, and that oil would average $89 a barrel in 2026 and $78 a barrel in 2027. Instead, conflict has disrupted energy supplies, while damaged refining capacity has added another $100 in crack-spread margins per barrel for products including diesel.
Georgieva said prolonged disruption to liquefied natural gas supplies would be especially painful for buyers in Europe and Asia. Saudi Arabia has rerouted oil through the East-West pipeline, while the United Arab Emirates is accelerating work on the West-East pipeline. Its expansion is expected to double export capacity through Fujairah when completed in 2027.
The IMF’s updated growth forecasts, due during the Bangkok meetings, will show the deepest downgrades in economies damaged by war. They include Ukraine and Gulf countries affected by Iranian strikes and sharply reduced energy exports.
The energy shock comes as governments enter the downturn with limited fiscal room. The IMF says public debt is at its highest level since World War Two and is projected to exceed 100 per cent of GDP before 2030. Global sovereign debt reached $365 trillion in the first half of the year, more than three times global GDP.
Bond markets are adding to that pressure. Ten-year sovereign yields in the US, Germany and Japan are at their highest levels since 2007, 2009 and 1996, respectively. The IMF said the conflict was raising energy prices, tightening financial conditions and slowing growth, while the duration of those pressures remained unclear.
Georgieva put the consequence in direct terms: 'And when interest rates go up, interest payments go up. And that suffocates the government's ability to do anything, including to help people with the high cost of living.'
According to the US Department of the Treasury, interest on the national debt will cost about $1.3 trillion in fiscal year 2026, more than the country spends on defense. In August, US debt surpassed $40 trillion, months ahead of forecasts, in large part because of refunds of President Donald Trump’s tariffs.
For policymakers, the energy squeeze is colliding with a very different force. Georgieva said the world was being pulled by a negative energy supply shock from Middle East conflicts and a positive demand shock from artificial intelligence, which is also feeding inflation.
IMF research suggests that artificial intelligence, if deployed well, could add a half percentage point to annual world growth. China, India, Japan, South Korea, Taiwan and other countries with strong technology sectors are gaining from the boom, while most countries are being left out, Georgieva said, widening economic inequality.
Her appeal before the Bangkok meetings was for governments to act rather than wait. 'My message to the world's economic policymakers next week will be this: we cannot keep delaying necessary policy action — you have the tools, now have the wisdom to use them.'
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