IMF Warning: Prolonged Middle East War and Supply Disruptions Are the Greatest Risks
nashnova research
The IMF warned that ongoing Middle East conflict and energy-supply disruption pose the greatest economic risk to the region, projecting a 1.3% contraction in 2026 before a 6.6% rebound in 2027 — but buffers are running thin, and the next disruption would hit far harder.
What exactly is the IMF worried about?
Jihad Azour, head of the IMF's Middle East and Central Asia department, said at the Bangkok annual meetings that prolonged war, damage to energy production, and disruption of shipping routes are the region's biggest economic risks.
The war's impact is highly uneven — countries directly hit face severe pressure, while others are far less affected.
This means → the risk is not a broad "regional downturn" but concentrated on a handful of frontline economies, dragging down aggregate numbers.
What cushioned the blow so far — and why is it wearing off?
Azour identified four buffers: pre-war fiscal surpluses, alternative shipping routes, demand-side adjustment, and large-scale inventory drawdowns — together they absorbed the energy shock from the closure of the Strait of Hormuz.
But he warned: inventories have dropped, spare capacity is tighter, and these buffers "bought time, but are ultimately limited."
In plain terms = the region ate through its emergency pantry to survive the first supply cut; if another disruption hits, the price shock will be far worse than last time.
What does the 2026–2027 outlook look like?
The IMF projects that the Middle East, North Africa, and Pakistan region will contract 1.3% in 2026 (after 3.3% growth in 2025), then rebound to 6.6% in 2027.
Oil exporters directly hit by the war face the deepest 2026 contraction; they should bounce back sharply in 2027 as energy production normalizes — but output is still expected to stay below pre-war medium-term forecasts.
This means → even an eye-catching rebound is just climbing out of a hole, not returning to the original growth track.
Which parts of the region are holding up better?
Oil-importing economies within the region show stronger resilience and are expected to remain stable.
The Caucasus and Central Asia are less exposed; inflation is projected to keep falling from elevated levels. Growth slows from 6.2% in 2025 to 5.2% in 2026 and 5% in 2027.
This reflects how the same war transmits through entirely different channels — the closer an economy is to energy exports, the deeper the damage.
What are the key variables from here?
Azour urged policymakers to prioritize three things: price stability, rebuilding fiscal buffers, and strengthening shock resilience.
The core variables boil down to two: whether energy production and trade can normalize quickly, and whether countries can hold macroeconomic stability.
In plain terms = that 6.6% rebound in 2027 is not locked in — whether it materializes depends on whether the war delivers another blow to supply chains.
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