The ongoing conflict between Iran, the U.S., and Israel poses a severe threat to the global economy, with potential ripple effects on inflation, growth, and financial stability, according to economist Mohamed El-Erian. In a recent analysis, El-Erian highlighted how the virtual closure of the Strait of Hormuz, a critical shipping channel for oil and liquefied natural gas, has driven energy prices higher and intensified economic pressures worldwide.
IMF Downgrades Growth Forecasts
The International Monetary Fund (IMF) has revised its global growth projections downward, citing the conflict’s impact. The IMF now expects global growth to slow to 3.1% this year, down from January’s forecast of 3.3%, while inflation is projected to rise to 4.4% in 2026 and 3.7% in 2027. Longer-term risks include potential damage to Middle Eastern energy infrastructure, which could slash growth to 2% and push inflation above 6% next year.
Reading between the lines, the message of today's IMF flagship report is sobering: Virtually every challenge facing the global economy is poised to intensify due to the fallout of the Middle East War.
El-Erian, chief economic advisor at Allianz, emphasized the conflict’s direct impact on U.S. households, including surging gas prices, more expensive mortgages, and broader increases in the cost of living. These factors could lead to lower economic growth and heightened financial instability. Jeremy Siegel, another leading economist, echoed these concerns, noting that higher oil, diesel, and fertilizer costs will likely drive up freight, shipping, and airfare prices in the coming months.
The IMF has also warned of larger fiscal deficits and increasing public debt, which could tighten financial conditions and raise long-term interest rates. As the conflict drags on, policymakers face difficult trade-offs between combating inflation, supporting economic growth, and rebuilding fiscal buffers.