The Managing Director of the International Monetary Fund, Kristalina Georgieva, has reported serious risks to global markets and the economy due to the prolonged conflict in the Middle East. According to her, this situation creates unexpected challenges that governments must be prepared for as they develop strategies to adapt to a “new normal.”
This is reported by Finway
Impact of Energy Prices and Inflation
Georgieva emphasized that if energy prices rise by 10% and remain at that level for a year, it will lead to a 40 basis point increase in global inflation. Additionally, a slowdown in economic growth is also expected. She further highlighted that even after hostilities cease, new shocks may arise that will continue to create uncertainty in the global economy.
“In this new global environment, think about the unthinkable and prepare for it,” says Georgieva.
Oil Supply Issues Through the Strait of Hormuz
Georgieva’s statement came after oil prices surged to $120 per barrel on March 9 due to the escalation of the conflict in the Middle East. This has also put additional pressure on oil supply logistics and global energy infrastructure. On March 8, the United Arab Emirates, Kuwait, and Iraq announced production cuts as their storage facilities were rapidly filling up due to the effective shutdown of the Strait of Hormuz.
The IMF head noted that shipping volumes through the Strait of Hormuz have decreased by 90%. This strategic strait accounts for approximately one-fifth of global oil supplies and liquefied natural gas trade, including nearly half of oil imports to the Asian region and a quarter of LNG imports.