The managing director of the International Monetary Fund (IMF) has warned the war in the Middle East will have far reaching and lengthy implications for the world’s economy and access to energy.

Speaking ahead of the IMF-World Bank’s spring meetings this week Kristalina Georgieva (pic) warned that the war has hit countries with a large, global, and asymmetric supply shock.

She explained: “A resilient world economy is being tested again by the war in the Middle East. The conflict has caused considerable hardship around the globe. My heart goes out to all people affected by this war and all wars.

“When we welcome ministers and central bank governors to our Spring Meetings this week, our focus will be on how best to weather this latest shock and ease the pain on economies and people.

“This requires understanding the nature of the shock, the channels through which it affects the economy, the size of the impact, and the policies that can mitigate it.”

Georgieva explained the world faced a supply shock that is £large, global, and asymmetric”.

“It is large because the world’s daily oil flow cut by some 13 percent, and its LNG flow by some 20 percent,” she continued. “It is global because all of us now paying more for energy and with supply chains disrupted across the world. And it is asymmetric because its impact depends on proximity to the conflict, whether you are an energy exporter or importer, and your policy space.”

She said the supply interruptions have had—and will for some time continue to have – ripple effects, such as:

• Oil refinery disruptions given the need to maintain minimum flow rates, with warning lights flashing red in many far-flung places.

• Food insecurity for another 45 million people given the transport issues – taking the total number of people in hunger to over 360 million—with the problem potentially worsening over time because of higher fertiliser prices.
• And supply chain disruptions given industrial dependencies such as on sulphur, helium for silicon chipmaking and MRI imaging, and naphtha for plastics.

“We have been here before in the 1970s and earlier this decade,” Georgieva added. We know eventually a significant part of the shock will dissipate, leaving us in a new equilibrium. Supply recovers and demand adjusts. New capacity comes on stream. Energy efficiency rises”

“As the world responds, it is important that we maintain our collective quest for energy efficiency and energy diversification. Different countries have different paths to energy security, but all must strive for it,” she cautioned.

Georgieva  said had it not been for this shock, the IMF would have been upgrading global growth.

“But now, even our most hopeful scenario involves a growth downgrade,” she said. “Why? Because of significant infrastructure damage, supply disruptions, losses of confidence, and other scarring effects.

“Take Qatar’s Ras Laffan complex—a tremendously important example of strategic investment done right; producer of 93 percent of the Gulf’s LNG, some 80 percent of it going to Asia-Pacific, a region that now endures serious fuel shortages. Ras Laffan has essentially been shut since March 2, took direct hits on March 19, and could take 3‒5 years to restore to full capacity.

“Even in the best case, there will be no neat and clean return to the status quo ante.

“Another relevant fact: see how ship passages through Bab-el-Mandeb on the Red Sea have never quite recovered from the devastating disruptions there—they remain stuck at about half their 2023 level.

“So, the reality is, we don’t truly know what the future holds for transits through the Strait of Hormuz or, for that matter, for the recovery of regional air traffic.

“What we do know is that growth will be slower—even if the new peace is durable.

“And we also know there are significant variations across the world. Countries able to export oil and gas undisturbed are the least affected. In contrast, countries directly disrupted by the war—including oil and gas exporters who suffered the blockade—and countries relying on imported oil and gas, still bear the brunt of the impact.

“How bad this impact will be will depend, in no small measure, on how much policy space countries have, including oil and gas reserves, given the five-week gap we have seen in tanker traffic from the Gulf.”