The IMF urges West Asia to prepare for the ‘Unthinkable’ Conflict
International Monetary Fund Managing Director Kristalina Georgieva stated that prolonged conflicts in West Asia could jeopardize markets and economies, presenting unforeseen challenges that necessitate policymakers to brace for a “new normal.” Georgieva stated on Monday “If the new conflict proves prolonged, it has clear and obvious potential to affect market sentiment, growth and inflation, placing new demands on policymakers.” She emphasized that new shocks could arise even after the conflict concludes, highlighting the prospect of ongoing uncertainty. “In this new global environment, think of the unthinkable and prepare for it,” she added. These points supported the IMF’s perspective that countries must address their domestic policies to ensure they possess the capacity to manage shocks, she indicated.
Georgieva addressed the situation following a significant rise in oil prices, which approached $120 a barrel on Monday before retracting some of those gains. This fluctuation comes amid intensifying conflict in West Asia and increasing pressure on oil shipping routes and the global energy infrastructure. The United Arab Emirates and Kuwait have aligned with Iraq in cutting production on Sunday, as storage capacities swiftly reach their limits due to the effective closure of the Strait of Hormuz. The head of the IMF stated that shipping traffic through Hormuz has decreased by 90 percent. The strait is responsible for approximately one-fifth of the global oil supply and LNG trade, encompassing nearly half of Asia’s oil imports and a quarter of its LNG imports, she stated. “For Japan, that traffic accounts for nearly 60 per cent of its oil and 11 per cent of its LNG supplies,” she said.
US President Donald Trump addressed the oil spike in a late-night post on his social media platform Truth Social, stating that short-term movements are a “very small price to pay.” He stated that prices will decline swiftly “when the destruction of the Iran nuclear threat is over.” Georgieva outlined the potential economic repercussions stemming from the crisis in West Asia. She stated that a 10 per cent increase in energy prices lasting for a year would elevate global inflation by 40 basis points and hinder economic growth. She added that the IMF will release a more detailed analysis in its upcoming World Economic Outlook report due in April.
In response to challenges, Georgieva emphasized the importance for policymakers to invest in robust institutions and policy frameworks that foster resilient economies and promote private-sector-led growth domestically. She also suggested utilizing the available policy space as necessary, on the condition that nations subsequently rebuild their buffers. In Japan, which depends on West Asia for approximately 90 percent of its oil imports, the increase in crude prices, coupled with a weak yen, heightens the risk of stagflation. The unexpected development may compel the government to increase fiscal spending, while simultaneously complicating the central bank’s attempts to normalize policy. “You have control over your domestic policies,” Georgieva stated. “You can get your own house in the best position to face these shocks.”
