IMF Chief Economist Gita Gopinath Signals Global Economic Impact of West Asia Conflict May Be Determined Within 24 Hours

Global Economic Outlook Uncertain Amid West Asia Conflict

The ongoing West Asia conflict may become clearer within the next 24 hours, according to Gita Gopinath, economist and former Deputy Managing Director of the International Monetary Fund (IMF). The situation remains in a 'wait-and-see mode' after US President Donald Trump issued an ultimatum to Iran to reopen the Strait of Hormuz, while Iran responded by warning it could target additional facilities.

India is one of the countries most exposed to the fallout, with multiple channels of vulnerability including imports, exports, and remittances. This exposure is already visible in pressure on the rupee. The immediate outlook is critical for both the trajectory of the conflict and the global economy.

Oil Price Projections

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Market expectations currently anticipate oil averaging $80 per barrel over the next 12 months. However, if oil were to average $100 per barrel for the rest of the year, the impact would be significantly larger, shaving off 0.5 to 0.6 percentage points from global growth. This would result in a global growth reduction of 3.3 percent.

Under such a scenario, global inflation could rise by 80 to 100 basis points. Financial markets have not fully priced in a more severe disruption, with US equity markets declining by about 6 to 7 percent cumulatively since the start of the war.

Infrastructure Risks

Iran's direct oil supply accounts for only about 1 to 2 percent of global output, limiting its standalone impact. However, potential damage to energy infrastructure in key Gulf producers such as Saudi Arabia, Qatar, and the United Arab Emirates poses a larger risk. Disruptions could affect not just crude oil but also natural gas, liquefied natural gas (LNG), and liquefied petroleum gas (LPG).

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Policy Response

Gita Gopinath cautioned against broad-based fiscal measures, suggesting that support should be done on a targeted basis, focusing on vulnerable households and sectors on the production side of the economy. Central banks should also play a role in anchoring inflation expectations through clear communication to maintain domestic economic stability.