The escalation of the war in Iran brings back the risk of a new international crisis, sending a clear warning: “All roads lead to higher energy prices and slower growth.” The alarm signal concerns the entire global economy, but with an uneven footprint, as the most vulnerable countries are already under strong pressure.
The vicious circle of appreciations
Tension in the Middle East is restricting the flow of oil, gas and fertilizers from the Persian Gulf, a critical choke point for global energy trade.
Brent prices topped $115 a barrel, while natural gas has soared in European markets. heightens uncertainty, warning that a protracted conflict could leave “permanent scars” on the global economy.
Global impacts on economies and households
The rise in energy and food costs is directly transferred to the standard of living. Increases in fuel, electricity and basic goods are squeezing incomes, while businesses face rising costs of production.
The IMF estimates that central banks may be forced to hold or even raise interest rates to curb inflation, further weighing on growth. The hit is universal but not uniform: even energy-exporting economies may benefit in the short term, but the overall picture remains negative for households.
Food and fertilizers: The invisible danger
About a third of the world’s fertilizer production passes through the Gulf, making the region critical for agricultural production. According to estimates by the Food and Agriculture Organization, food prices could rise by 15% to 20% in the first half of 2026 if the crisis continues.
This increase disproportionately affects low-income economies, where food accounts for a large share of consumption. The IMF warns that this development could turn into social and political instability.
Scenarios: From a short shock to a prolonged crisis
The range of effects depends on the duration and intensity of the conflict. A short episode could cause prices to rise sharply before markets balance out. A prolonged scenario, however, would keep energy expensive and particularly burden import-dependent countries.
The most likely scenario, according to the IMF, is an intermediate situation: persistent tensions, high energy costs and persistent inflation, with increased geopolitical risk.
Fed: Its “watch and then decide” strategy
In a lecture to Harvard macroeconomics students, as reported by Reuters, the chairman of the US Federal Reserve (Fed) Jerome Powell emphasized that policymakers usually ignore a short-term shock, such as increases in oil prices.
“We feel our policy is in a good place to see how things play out,” he said.
The rise in US gasoline prices to around $4 a gallon is putting pressure on two of the Fed’s key goals: price stability and full employment. Powell acknowledged that inflation expectations look stable over the long term, but added that the bank should be prepared for any scenario.
“We are not yet facing the immediate need for measures because we do not fully know the economic consequences,” he said. “However, we will take the wider context into account when making decisions.”
Europe: The fear of a new energy crisis
In Europe, the situation is reviving memories of the 2021–2022 natural gas crisis. Countries such as Italy and the UK appear more exposed due to dependence on natural gas, while others, such as France and Spain, have greater protection thanks to nuclear power and renewables.
Governments are already considering new support packages for households and businesses ahead of a difficult winter, with increased subsidies and social interventions.
Yannis Stournaras: “Why are we better prepared now”
Yiannis Stournaras, sounds the alarm for the eurozone: the new energy disruption has clear characteristics of stagflation.
As Mr. Stournaras pointed out, the rise in energy prices is expected to push inflation higher in the short term, while it will negatively affect growth through increased energy costs, lower real incomes, increased uncertainty and lower confidence.
Forecasts point to a slowdown in growth while inflation remains above target, creating an explosive mix for monetary policy. In particular, Mr. Stournaras explained that “general inflation is predicted to be 3.1% in the second quarter of this year and 2.8% in the third quarter. However, the medium-term outlook for inflation has not deviated significantly from the 2% target.
Despite the challenges, Mr. Stournaras emphasizes that the eurozone does not start from the same point as in the crisis of 2021-2022.
On the contrary, there are strong foundations:
- Inflation in the euro area has been hovering around the 2% target for almost a year, and is even slightly short of our symmetric target in the first two months of 2026. This provides some room for a future tightening of interest rates. Moreover, euro area growth is proving resilient. By contrast, when the ECB started its monetary policy tightening cycle in July 2022, the inflation rate in June 2022, which was the most recent data available, was 8.6%.
- The Governing Council had raised the policy rate, i.e. the Deposit Facility Rate (DFR), from -50 basis points to 0%. Today’s monetary policy direction is very different: the deposit facility rate, currently at 2.0%, is at a neutral level.
- Furthermore, in mid-2022 the ECB’s balance sheet was creating accommodative monetary policy conditions as bond purchases had just ended but reinvestment was continuing. Today, the balance sheet normalization process is in full swing.
These elements constitute, according to Mr. Stournara, a “solid base” that allows monetary policy to move flexibly amid uncertainty.
Greece: Slowing down with resistance “cushions”.
The crisis is also affecting the Greek economy, with the International Monetary Fund revising its growth forecast to 1.8%. Rising energy prices and slowing international demand act as key pressure factors.
However, the country appears more resilient than in the past. High primary surpluses, debt deleveraging and the possibility of targeted support measures create a safety net against shocks.
The fine balances of the next day
The main message of the IMF is twofold: the crisis is global, but the consequences are unevenly distributed. At the same time, management requires careful moves.
Governments are called upon to support households and businesses without jeopardizing fiscal stability. In an environment where energy remains expensive and inflation persistent, the challenge is not limited to the resilience of economies, but extends to maintaining balance in a period of sustained uncertainty.
