IMF cuts 2026 growth forecast to 3% as Iran war disrupts energy markets

The International Monetary Fund cut its 2026 global growth forecast to 3% on Wednesday, down from 3.5% last year, as the Iran war's disruption of crude flows through the Strait of Hormuz delivers the largest energy shock in decades.

"The war has created a supply shock unlike anything we have seen since the 1970s, but the global economy has proven more resilient than initially feared," said Pierre-Olivier Gourinchas, chief economist at the IMF, in the July update of the World Economic Outlook.

The IMF projects growth will rebound to 3.4% in 2027, contingent on a de-escalation of hostilities. Oil prices surged after the US revoked its waiver on Iranian sanctions and President Trump declared the interim ceasefire agreement "over," sending Brent crude above $95 a barrel. The Strait of Hormuz, through which about 21% of global oil trade passes, remains a flashpoint after US Central Command reopened strikes on Iran in response to attacks on commercial shipping.

The conflict has pushed energy costs higher for airlines, manufacturers, and consumers worldwide — US airlines' fuel spending rose 84% over the past year. But the IMF noted that booming investment in artificial intelligence and renewable energy has partially offset the drag, creating a two-speed global economy where tech-heavy sectors outperform energy-intensive industries.

The IMF's latest projections represent a modest downgrade from its April forecast, with researchers saying the "movements in and repercussions from the main channels of transmission — commodity prices, inflation expectations, and financial conditions — have been relatively limited." Still, the report warned that a resumption of full-scale military operations "looms large" and could worsen conditions significantly.

Energy shock reverberates across markets

The last comparable energy supply disruption came in September 2019, when drone attacks on Saudi Aramco's Abqaiq and Khurais facilities temporarily knocked out 5.7 million barrels per day of production, sending crude prices up 15% in a single session. The current crisis is broader in scope, involving not just production but the transit chokepoint of the Strait of Hormuz, where Iran has targeted commercial vessels. The IMF estimates the energy shock has added 1.2 percentage points to global inflation this year, complicating central banks' efforts to return to their 2% targets.

Some corporate executives believe the worst has passed. "As countries and companies globally grapple with the impact of the Iran war and the largest energy shock in history, some say the worst is over," according to a Reuters survey of industry leaders published Thursday. Others view the conflict as a window of opportunity to accelerate green energy initiatives and reduce long-term dependence on Middle Eastern crude.

AI investment provides a buffer

The IMF identified artificial intelligence as a key mitigating factor, with data center construction, semiconductor demand, and enterprise software spending helping to sustain economic activity in developed economies. The boom has been particularly pronounced in the United States, where tech capital expenditure on AI infrastructure is projected to exceed $200 billion this year, according to industry estimates. This investment wave has created jobs, boosted productivity growth, and supported equity markets even as energy costs climb.

The fund urged policymakers to focus on ensuring price stability, maintaining central bank independence, and strengthening financial oversight in the coming months. The next World Economic Outlook update is scheduled for October.

This article is for informational purposes only and does not constitute investment advice.