BAKU, Azerbaijan, March 31. The International Monetary Fund (IMF) reports that the war in the Middle East is not only destroying lives and livelihoods in the region and beyond, but is also worsening the economic outlook for countries that had only just begun to recover from previous crises, Trend reports, citing the IMF.
Moreover, it is noted that the global shock is uneven in nature: energy-importing countries, poor nations, and countries with limited financial reserves are suffering the most.
"Affected countries are experiencing serious economic consequences, including the destruction of infrastructure and industry, which may have long-term effects. The short-term growth outlook for these countries remains negative.
At the same time, major energy importers in Asia and Europe are facing rising costs for fuel and raw materials: about 25–30% of the world’s oil and 20% of liquefied natural gas pass through the Strait of Hormuz, meeting demand not only in Asia but also in certain European countries. For African and Asian countries heavily dependent on oil imports, securing the necessary supplies is increasingly difficult, even at high prices.
“Rising food and fertilizer prices, along with tighter financial conditions, are creating additional pressure, particularly in low-income countries. Some of these countries may need external support, despite the reduction in such aid,” the information says.
The IMF notes that the war will lead to rising prices and slower economic growth: “A short-term conflict could trigger a sharp rise in oil and gas prices, while a prolonged conflict would keep energy prices high and increase the burden on importing countries.”
"Energy is the main channel of impact. The de facto closure of the Strait of Hormuz and damage to the region’s infrastructure have caused the largest disruption in oil supplies to the global market in history, which effectively amounts to a sudden tax on income for importing countries.
A multi-level impact is being observed in several regions. Energy-importing countries in Africa, the Middle East, and Latin America are experiencing rising import costs against a backdrop of limited budgetary and foreign exchange reserves.
In major Asian industrial economies, rising fuel and electricity costs are increasing production costs and reducing household purchasing power; in some countries, pressure on the balance of payments is already affecting currencies. In Europe, the crisis is reviving fears of a repeat of the 2021–2022 gas crisis, with Italy and the UK particularly vulnerable due to their reliance on gas-fired power plants, while France and Spain are relatively protected thanks to their high share of nuclear and renewable energy," the fund reports.
Furthermore, it is emphasized that in oil-exporting countries in the Middle East, parts of Africa, and Latin America that can supply oil to the market, fiscal and external economic positions are strengthening: “Producing countries whose supplies are limited, including some members of the Gulf Cooperation Council, have less potential to benefit.”
“The war is also disrupting supply chains for oil and other key materials. The rerouting of tankers and container ships is increasing transportation and insurance costs, as well as delivery times. Disruptions to air traffic around key Gulf hubs are affecting global tourism and complicating trade.”
In addition to rising commodity prices, countries, companies, and consumers are facing the consequences of supply chain disruptions. Disruptions in fertilizer shipments, about one-third of which pass through the Strait of Hormuz, are increasing the risk of rising food prices, particularly in the Northern Hemisphere during the planting season.
Low-income countries remain the most vulnerable, where food expenditures account for an average of about 36% of consumption, compared with 20% in emerging economies and 9% in developed countries. “Rising food and fertilizer prices have not only economic but also socio-political consequences, especially given limited budgetary resources,” the IMF reports.
The report emphasizes that shortages and price increases for other industrial materials are also possible: "The Gulf region supplies a significant share of the world’s helium, used in semiconductors and medical equipment. Indonesia, which supplies about half of the world’s nickel for electric vehicle batteries, may face a shortage of sulfur for metal processing. East African countries, which depend on trade and remittances from the Gulf region, are facing a drop in demand for services, logistical challenges, and a decline in remittances."
"If high energy and food prices persist, this will lead to global inflation. Historically, sustained increases in oil prices have been accompanied by rising inflation and slower growth. Higher transportation and production costs are reflected in the prices of goods and services.
The impact varies by region. In Asia and parts of Latin America, where inflation has been relatively low, rising energy and food prices will test the resilience of expectations, particularly in countries with weaker currencies. In Europe, a new surge in energy prices will exacerbate existing cost-of-living pressures. In low-income countries, rising food prices have acute social and economic consequences.
The war has also destabilized financial markets. Global stock indices have fallen, bond yields have risen in developed and many developing countries, and volatility has increased. Asset sales have tightened financial conditions.
The impact varies. In Europe and many developing countries, higher yields and widening credit spreads are increasing the burden of debt servicing and making refinancing more difficult for governments and companies. “In sub-Saharan Africa and some countries in the Middle East and South Asia, limited reserves and market access make external financial shocks more dangerous, especially as costs for fuel, fertilizer, and food imports rise,” the information says.
At the same time, it is emphasized that developed countries with deep domestic capital markets and some commodity-exporting countries with sufficient reserves, such as Saudi Arabia, the UAE, Brazil, and Ecuador, are better able to cope with market stress, although they are not immune to rising risk premiums.