WASHINGTON, D.C.: The global economy is entering a period of heightened risk as the war in Iran disrupts energy markets, with the International Monetary Fund warning that a prolonged conflict could push growth into recession.

On April 14, the IMF cut its global growth outlook and outlined multiple scenarios showing how escalating tensions in the Middle East could reshape economic prospects, with oil prices playing a decisive role.

In its latest World Economic Outlook, the IMF presented three scenarios — reference, adverse, and severe — depending on the trajectory of the conflict and its impact on energy supplies.

Under the most optimistic "reference scenario," which assumes a short-lived conflict, global growth is projected at 3.1 percent in 2026, down 0.2 percentage points from the January forecast. Oil prices are expected to average US$82 per barrel in this scenario, lower than current levels near $100.

Without the war, the IMF said it would have upgraded its forecast to 3.4 percent, citing strong technology investment, easing interest rates, reduced U.S. tariffs, and fiscal support in some economies.

But the conflict now poses a far greater threat than earlier trade tensions, IMF chief economist Pierre-Olivier Gourinchas said. "What's happening in the Gulf is potentially much, much larger, and that's what our scenarios are kind of documenting," he said.

Under an "adverse scenario" in which the conflict persists and oil prices hover around $100 this year and $75 in 2027, global growth could slow to 2.5 percent.

The IMF's "severe scenario" assumes a deeper and prolonged conflict, with oil prices averaging $110 per barrel in 2026 and $125 in 2027. In that case, global growth would fall to 2.0 percent.

"This would mean a close call for a global recession," the IMF said, noting that growth has dipped below that level only four times since 1980, including during the 2009 financial crisis and the 2020 COVID-19 pandemic.

The outlook also raises concerns about inflation. Under the severe scenario, global inflation could exceed 6 percent in 2026, compared with 4.4 percent in the reference case.

Gourinchas warned that persistently high oil prices could entrench inflation expectations, forcing central banks to tighten monetary policy. "That change in inflation expectations is going to require central banks to step on the brakes and try to bring inflation back down," he said, adding that the adjustment could be more painful than in 2022.

However, he noted that central banks may be able to "look through" temporary energy price spikes if inflation expectations remain anchored.

Among major economies, the IMF trimmed its U.S. growth forecast slightly to 2.3 percent for this year, supported by tax cuts, past rate reductions, and continued investment in AI infrastructure. Growth for 2027 is now seen at 2.1 percent.

The euro zone faces a larger hit, with growth projections lowered to 1.1 percent in 2026 and 1.2 percent in 2027, reflecting its vulnerability to energy price shocks.

Japan's outlook remains largely unchanged at 0.7 percent for 2026 and 0.6 percent for 2027, though the IMF expects the Bank of Japan to raise rates more quickly than previously anticipated.

China's growth is forecast at 4.4 percent in 2026, slightly lower than earlier projections, with government stimulus and lower U.S. tariffs partly offsetting the impact of higher energy costs. Growth is expected to ease further to 4.0 percent in 2027.

Emerging markets and developing economies are expected to be hit harder, with 2026 growth revised down to 3.9 percent. The Middle East and Central Asia region faces the sharpest impact, with growth expected to fall to 1.9 percent amid infrastructure damage and disrupted exports.

Country-level projections show steep contractions in 2026, including declines of 6.1 percent for Iran, 8.6 percent for Qatar, and 6.8 percent for Iraq.

India stands out as a relative bright spot, with growth upgraded to 6.5 percent for both 2026 and 2027, supported by strong domestic momentum and easing trade tensions with the United States.

The IMF cautioned governments against broad fiscal measures, such as fuel subsidies or price caps, to offset rising energy costs, warning that they could strain public finances.

Gourinchas said targeted and temporary support was more appropriate. "You have to do it in a very targeted, very temporary way that doesn't really mess up the fiscal framework," needed by most countries to rebuild fiscal buffers, he said.