US Treasury Secretary Scott Bessent recently spoke to the BBC about the economic and security implications of the ongoing conflict between the US, Israel, and Iran. He acknowledged that while the war may cause a "small bit of economic pain," he believes this is a necessary sacrifice for long-term international security. Bessent emphasized that the primary goal of the conflict is to eliminate the threat posed by Iran's nuclear ambitions, particularly the potential for nuclear strikes on Western capitals.
Bessent pointed out that while short-term economic forecasts may show negative impacts, the risks of allowing Iran to develop nuclear weapons pose far greater dangers. He noted that at the start of the conflict, Iran had uranium enriched up to 60%, though it did not possess nuclear weapons. He also highlighted intelligence indicating that Iran has mid-range intercontinental ballistic missiles capable of reaching cities such as London and that Iran's nuclear program remains a serious concern.
In contrast, the UK government has stated there is currently "no assessment" that Iran is targeting Europe with missiles. A UK government spokesperson reassured the public that the country has the military capabilities necessary to defend against any attacks, whether domestic or foreign, and is prepared to respond to any threats.
The International Monetary Fund (IMF) has issued warnings about the potential economic fallout of the US-Israel conflict with Iran. In its World Economic Outlook report, the IMF outlined a worst-case scenario where sustained high prices for oil, gas, and food could push global growth below 2% in 2026, potentially triggering a global recession. Such a recession would be a rare event, occurring only four times since 1980, most recently during the Covid-19 pandemic.
The conflict has already led to a sharp rise in energy prices, particularly after the closure of the key Strait of Hormuz shipping route. Peace talks between the US and Iran have failed to produce a resolution. The IMF highlighted that the outbreak of war in the Middle East at the end of February 2026 threatens to derail the global economy once again.
According to the IMF's analysis, if oil prices average $110 per barrel this year and climb to $125 in 2027, inflation could reach as high as 6%. This would likely force central banks worldwide to raise interest rates in an attempt to slow inflation. IMF chief economist Pierre-Olivier Gourinchas warned that if the conflict continues for an extended period, it could lead to spiraling inflation, rising unemployment, and food insecurity in vulnerable countries.
Gourinchas compared the potential impact on oil supply to the 1970s oil crisis, when Arab oil producers imposed an embargo on countries supporting Israel during the Yom Kippur War. However, he also noted that the global economy is now less dependent on fossil fuels than it was then, which could mitigate the impact on consumers.
Energy prices have been volatile during the conflict. Oil prices rose close to $120 per barrel but have since fallen back, with crude oil trading at around $95 per barrel recently. The IMF emphasized that the risk of a global recession would increase only if severe conditions persist for two years or more. If the conflict is resolved within the next few weeks and energy production and exports normalize by mid-year, the IMF projects global growth of 3.1% in 2026, slightly below the earlier forecast of 3.3%, with growth in 2027 remaining steady at 3.2%.
Among advanced economies, the IMF forecasts that the UK will be the hardest hit by the energy shock resulting from the Iran war. The UK's growth estimate for 2026 was cut to 0.8%, down from a previous 1.3%, though a recovery is expected in 2027 with growth around 1.3%.
Oil-exporting nations in the Gulf region are also expected to face economic challenges. Iran's economy is projected to shrink by 6.1% in 2026 due to the war but could rebound with 3.2% growth in 2027, assuming the conflict ends soon. However, the situation remains uncertain. Recently, US President Donald Trump announced a blockade of Iranian ports aimed at halting exports, which could prolong economic difficulties for Iran.
Countries like Qatar, a major supplier of liquefied natural gas (LNG), have experienced direct impacts from the conflict. Qatar's Ras Laffan LNG refinery, the world's largest, has been targeted by Iranian missile and drone attacks and is not expected to be fully operational for some time. The IMF forecasts an 8.6% contraction in Qatar's economy for 2026, followed by an equally strong rebound in 2027.
Iraq, another neighbor of Iran, is also expected to suffer economically this year, with a projected slowdown of 6.8%. However, Iraq's economy is forecast to recover robustly with 11.3% growth next year. The IMF noted that a country's economic resilience will depend on various factors, including damage to energy infrastructure, reliance on the Strait of Hormuz for exports, and the availability of alternative export routes.
Saudi Arabia offers an example of infrastructure that can mitigate the conflict's impact. The kingdom's East-West pipeline, which connects the Persian Gulf to the Red Sea and can transport up to 7 million barrels of oil per day, provides an alternative export route. Saudi Arabia's economy is expected to slow in 2026 but still grow by 3.1%, with expansion accelerating to 4.5% in 2027.
Overall, the IMF suggests that most Middle East oil-exporting countries could see an economic upturn next year if energy production and transportation normalize in the coming months. However, the IMF cautioned that this outlook could change if the conflict prolongs or damage assessments worsen.
The IMF also revised down its forecast for China's economic growth in 2026 to 4.4%, slightly lower than the 4.5% predicted in January. The projection for 2027 remains unchanged at 4%. China's economy, as the world's second largest, plays a significant role in global economic dynamics.
In contrast, Russia is expected to benefit somewhat from the surge in oil prices resulting from the conflict. The IMF predicts Russian economic growth of 1.1% in both 2026 and 2027, up from previous forecasts of 0.8% and 1% respectively. Russia has faced extensive sanctions following its invasion of Ukraine more than four years ago. However, in March, Trump lifted certain restrictions on Russian oil exports as global prices rose and also temporarily eased sanctions on 140 million barrels of Iranian oil for 30 days.
European officials have warned against easing sanctions on Russia. Valdis Dombrovskis, the European Commissioner for Finance, stated that Russia appears to be "emerging as a winner from this war" due to increased energy revenues that support its military efforts. Dombrovskis emphasized that now is "not the time to ease the pressure on Russia," highlighting the geopolitical complexities surrounding the conflict.
In summary, the ongoing US-Israel conflict with Iran presents significant risks to global security and the world economy. While US officials prioritize eliminating Iran's nuclear threat even at the cost of short-term economic disruptions, international bodies like the IMF warn that prolonged conflict could lead to recession, inflation, and food insecurity. Energy markets remain volatile, with key oil-exporting countries in the Middle East facing economic contraction but potential recovery if the war ends soon. Meanwhile, Russia's economy benefits from higher energy prices despite sanctions, prompting calls from European leaders to maintain economic pressure. The situation remains fluid, and global economic prospects hinge largely on the conflict's duration and resolution.