The International Monetary Fund’s director, Kristalina Georgieva, has warned that the potential economic fallout from US strikes on Iran could extend far beyond immediate consequences, leading to significant “secondary and tertiary impacts” on global growth. Speaking to Bloomberg TV, Georgieva highlighted the IMF’s close monitoring of energy prices, emphasizing that a surge in oil costs could trigger a ripple effect throughout the world economy, ultimately forcing downward revisions in global growth forecasts, particularly for major economies.
These concerns are amplified by the Iranian parliament’s recent vote to consider closing the Strait of Hormuz, a crucial maritime chokepoint through which a fifth of the world’s oil consumption flows. This retaliatory move, following a US attack, threatens to create an oil supply shock, driving up inflation and hindering economic expansion. While some experts, like Berenberg Bank’s Holger Schmieding, believe a full disruption is unlikely, the mere threat is causing significant market apprehension.
Oil prices initially jumped over 5% on Sunday, reaching a five-month high of $81.40, reflecting immediate market anxiety. However, prices later retreated, with Brent crude falling to just over $76 a barrel on Monday. Nevertheless, the potential for extreme price hikes persists, with Goldman Sachs estimating oil could hit $110 a barrel if Hormuz flows are significantly curtailed for an extended period.
Against this backdrop, US Secretary of State Marco Rubio has branded a closure of the strait as “economic suicide” for Iran, urging China to influence Tehran given its heavy reliance on Hormuz for oil. Analysts at RBC Capital Markets have also advised against complacency, warning of “clear and present risk of energy attacks” from Iranian-backed groups and noting the fluidity of the situation, as evidenced by the reported U-turn of two supertankers in the strait.