IMF warns Middle East conflict could reignite global inflation

Monday 09 March 2026 - 10:20

By: Dakir Madiha

IMF warns Middle East conflict could reignite global inflation

The International Monetary Fund warned that the expanding conflict in the Middle East could push global inflation higher as oil prices approach $120 per barrel, adding new pressure to the world economy at a time when weak labor data in the United States is intensifying concerns about stagflation.

IMF Managing Director Kristalina Georgieva said on March 9 that sustained increases in energy prices could undermine progress made in recent years against inflation. She noted that a 10 percent rise in oil prices could increase global inflation by about 0.4 percentage points while reducing economic growth by roughly 0.1 to 0.2 percentage points.

“We cannot consider victory over inflation as guaranteed,” Georgieva said, urging policymakers to prepare for possible economic shocks.

Oil prices have climbed sharply since the United States and Israel launched military operations targeting Iran at the end of February. Brent crude has surged by roughly 25 to 30 percent during the escalation, briefly nearing $120 per barrel.

Economists warn that higher energy costs could ripple across global markets. Analysts at Goldman Sachs told Reuters that even a temporary rise in oil prices to around $100 per barrel could reduce global growth by about 0.4 percentage points while adding roughly 0.7 percentage points to overall inflation.

Mohamed El Erian, chief economic adviser at Allianz, told CNBC that the longer the conflict continues, the greater the risk of stagflation for the global economy.

Concerns about slowing growth have been reinforced by a weak U.S. labor market report for February. The data showed the American economy unexpectedly lost 92,000 jobs during the month, sharply diverging from forecasts that predicted roughly 60,000 new jobs.

The unemployment rate increased to 4.4 percent. Federal government employment declined by 10,000 positions, contributing to a broader drop of about 330,000 federal jobs since October 2024.

Other sectors also reported declines. Healthcare, manufacturing and construction all lost jobs during the month, with a doctors’ strike contributing to a reduction of about 28,000 healthcare positions.

The disappointing employment figures have complicated the outlook for U.S. monetary policy. With inflation risks rising due to higher oil prices and labor conditions weakening, the Federal Reserve faces increasing difficulty balancing interest rate decisions.

The economic shock is already affecting Asian markets. In India, the Nifty 50 index fell to its lowest level since April 2025 on March 9, dropping nearly 7 percent from levels seen before the conflict escalated. The Sensex index lost close to 3,000 points, wiping out roughly 12 lakh crore rupees in investor wealth.

Foreign institutional investors have accelerated stock sales in Indian markets, while rising oil prices are increasing the country’s import costs. According to JM Financial, every additional dollar in crude prices adds about $2 billion to India’s annual oil import bill.

The Philippines is also considered particularly vulnerable because nearly 90 percent of its oil imports come from the Middle East. Analysts at ING warned that a 20 percent increase in oil prices could raise the country’s overall inflation rate by as much as 0.8 percentage points if passed through fully to consumer prices.

Emilio Neri, chief economist at the Bank of the Philippine Islands, said energy driven inflation could push Philippine inflation toward 4 percent in the coming months.

Some policymakers caution against direct comparisons with earlier energy crises. François Villeroy de Galhau, governor of the Bank of France, said the current situation differs from the 2022 energy shock triggered by the war in Ukraine. Still, economists warn that prolonged instability in the Middle East could have broad consequences for both European and Asian economies.