The International Monetary Fund has issued a stark warning that the US-Israel war on Iran could set off an energy crisis “of an unprecedented scale” and push the global economy toward recession.
The warning appears in the IMF’s latest World Economic Outlook, which paints a more fragile picture for the world economy at a time of heightened geopolitical risk. In one scenario outlined by the fund, global growth could fall to just 2% in 2026.
The IMF’s assessment comes as Australia’s treasurer, Jim Chalmers, prepares to travel to Washington DC for the organisation’s spring meetings this week. Chalmers said he would be “joining with other countries continuing to call for an enduring end to the war”.
His comments come as governments and financial officials look closely at the economic fallout from the conflict, particularly the threat to energy markets. The IMF’s warning suggests that disruption to oil and other energy supplies could have consequences well beyond the immediate conflict zone, feeding into inflation, growth pressures and wider financial instability.
Chalmers is also weighing what he has described as “extreme uncertainty” in the global outlook. That uncertainty now includes the possibility that the conflict could intensify an already delicate economic environment, with the IMF signalling that the risk is no longer confined to regional effects.
The fund’s latest outlook is being watched closely by policymakers because it arrives at a moment when countries are already contending with slower growth, volatile markets and continued strains in international trade and energy supply. The addition of a major war-related energy shock, the IMF suggests, could further weaken prospects for the year ahead.
Australia’s participation in the spring meetings is expected to focus on both the economic risks and the diplomatic push for de-escalation. For Chalmers, the meetings will provide an opportunity to press the case alongside other countries for an end to the war while also taking stock of the global economic warnings now emerging from Washington.
The IMF’s language underscores how closely the conflict and the economy are now linked. A prolonged energy shock, the fund indicates, could affect growth across multiple regions and deepen the chance of a broader downturn. With global growth in one scenario dropping to 2% in 2026, the outlook described in the report is one of significant vulnerability rather than resilience.
As the spring meetings begin, the focus for policymakers will be on whether diplomatic efforts can reduce the risk of further disruption. For now, the IMF’s message is clear: the war on Iran carries the potential to trigger an energy crisis on a scale that could put the world economy under severe strain.
