The International Monetary Fund’s director, Kristalina Georgieva, has issued a grave warning about the “ripple effect” that could engulf the global economy if the US-Iran conflict intensifies. She told Bloomberg TV that a rise in oil prices, potentially triggered by US strikes on Iran, could have widespread “secondary and tertiary impacts,” ultimately leading to downward revisions in global growth prospects, particularly for large economies. This highlights the interconnectedness of global finance and geopolitical stability.
The immediate source of concern is 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 measure, following a US attack, threatens to create an unprecedented oil supply shock, pushing up inflation and impeding economic expansion worldwide.
Oil prices initially reacted with a jump of over 5% on Sunday, hitting a five-month high of $81.40. However, prices later retreated, with Brent crude falling nearly 1% to just over $76 a barrel on Monday. Despite this, the potential for dramatic increases remains, with Goldman Sachs estimating oil could hit $110 a barrel if Hormuz flows are substantially reduced for an extended period.
In diplomatic efforts, US Secretary of State Marco Rubio has called any closure of the strait “economic suicide” for Iran and has urged China to use its influence, given its heavy reliance on the waterway. Analysts at RBC Capital Markets are also advising caution, warning of “clear and present risk of energy attacks” from Iranian-backed militias and emphasizing that the situation remains fluid, as evidenced by two supertankers reportedly changing course in the strait.