The International Monetary Fund has warned that the US-Israel war on Iran risks creating an “energy crisis of an unprecedented scale” that could tip the global economy towards recession. The warning comes as Australian Treasurer Jim Chalmers prepares to attend the IMF’s spring meetings in Washington DC, where he will call for an end to the conflict.
In its latest World Economic Outlook, the IMF outlines three scenarios. The baseline assumes the war ends within weeks, with oil prices normalising by mid-year. An adverse scenario sees oil averaging US$100 a barrel through 2026, while a severe scenario projects oil at US$110 this year and US$125 next, pushing global growth to just 2% in 2026—a level considered a close call for recession.
Under the baseline, Australia’s economy would grow by 2% in 2026, down 0.1 percentage points from January forecasts, and inflation would average 4% in 2026. Unemployment would remain in the low 4% range. However, the IMF did not model the impact of the more pessimistic scenarios on Australia.
Mr Chalmers said Australians were “paying a hefty price for events on the other side of the world” and reiterated calls for a ceasefire and the reopening of the Strait of Hormuz. With the federal budget due on 12 May, the government is weighing policy changes including tax adjustments and potential additional taxes on LNG exports.
IMF Chief Economist Pierre-Olivier Gourinchas warned that the closure of the Strait of Hormuz and damage to energy facilities raise the prospect of a major energy crisis. He cautioned governments against populist measures as they prepare cost-of-living relief.
