The head of the International Monetary Fund (IMF) has warned that the ongoing conflict in West Asia could create serious economic risks if it continues for a long time, reported Bloomberg. IMF Managing Director Kristalina Georgieva said countries should be ready for unexpected shocks and prepare for a “new normal”.
She made the remarks on Monday while speaking at a symposium in Tokyo.
Georgieva said a
“If the new conflict proves prolonged, it has clear and obvious potential to affect market sentiment, growth and inflation, placing new demands on policymakers,” she said.
She also warned that fresh shocks could appear even after the conflict ends, which means the global economy could face continued uncertainty.
“In this new global environment, think of the unthinkable and prepare for it,” she added.
Her comments came as oil prices rose sharply amid tensions in West Asia. Oil briefly climbed close to $120 a barrel on Monday before easing later in the day.
The rise in prices followed growing concerns about oil supply and shipping routes in the region. The United Arab Emirates and Kuwait joined Iraq in cutting oil output on Sunday as storage facilities filled up due to the effective closure of the Strait of Hormuz.
Georgieva said shipping activity through the Strait of Hormuz has dropped by about 90%. The narrow waterway is one of the most important energy routes in the world.
About one-fifth of global oil supply and liquefied natural gas (LNG) trade passes through the strait. It also carries roughly half of Asia’s oil imports and a quarter of its LNG imports.
For Japan, the route is especially important. Around 60% of the country’s oil and 11% of its LNG supplies pass through Hormuz, Georgieva said.
Higher oil prices combined with a weak yen could raise the risk of stagflation, a situation where inflation rises while economic growth slows. The situation could force the government to increase spending while also making it harder for Japan’s central bank to adjust its monetary policy.
US President Donald Trump also commented on the surge in oil prices. In a late-night post on his social media platform Truth Social, he said short-term price increases were a “very small price to pay”.
He added that oil prices would fall quickly “when the destruction of the Iran nuclear threat is over”.
Georgieva also explained how rising energy costs could affect the global economy.
She said if energy prices rise by 10% and remain high for a year, global inflation could increase by 40 basis points. At the same time, economic growth could slow down. The IMF plans to release a detailed analysis of these risks in its upcoming World Economic Outlook report, which is expected in April.
Georgieva urged governments to strengthen their domestic economic policies so they are better prepared for global shocks.
She said countries should invest in strong institutions and policy frameworks that support stable and resilient economies. Governments should also use their policy tools carefully during crises but rebuild their financial buffers afterwards.
“You have control over your domestic policies,” Georgieva said. “You can get your own house in the best position to face these shocks.”