Alarm over the impact of the Iran war on the global economy grew this Monday with more countries announcing emergency support measures to combat rising energy costs, while others appealed for international support.
The conflict the third major shock to hit the world’s economy after the COVID pandemic and Russia’s invasion of Ukraine will dominate this week’s gathering of finance officials at the International Monetary Fund (IMF) in Washington.
Any lingering hopes of an early restart to oil shipments through the Strait of Hormuz chokepoint were dashed after the failure of United States (US)-Iran talks at the weekend that left a fragile ceasefire in yet greater jeopardy.
The IMF and World Bank have already signalled they will downgrade their forecasts for global growth and raise their inflation predictions as a result of the war, with emerging markets and developing countries seen hit hardest.
Nigeria said on Monday it would need greater international support to combat fuel costs at home even as higher crude prices boosted foreign exchange earnings for Africa’s top oil producer.
“The shock comes at a critical transition point, intensifying inflationary pressures and raising living costs for households,” Finance Minister Wale Edun said in a statement ahead of this week’s meetings in Washington.
Local petrol prices have surged more than 50% and diesel more than 70% since the start of the conflict, Edun said, adding that the shock threatened to derail efforts launched in 2023 to stabilise the economy and revive growth.
Few countries are immune to the aftershocks from the halt of energy shipments through the strait since the war began on February 28 and triggered the world’s worst ever disruption to supplies. Dozens of governments have already acted with measures aimed at conserving energy or designed to support consumers.
Germany’s coalition government, which initially resisted calls to provide support, said on Monday it had agreed fuel price relief for consumers and businesses worth 1.6 billion Euros ($1.9 billion) via cuts to levies on diesel and petrol.
“We’re in a world where there’s massive conflict, great uncertainty, and I strongly believe the United Kingdom’s best interests are in a stronger, closer relationship with Europe,” he told BBC radio.
The Iran war is also upending central bank policy around the world as policymakers try to understand how much it will hit economic growth and heighten inflation potentially at the same time in what would be an unwelcome bout of “stagflation”.
European Central Bank (ECB) Vice President Luis de Guindos said on Monday any ECB rate rise would depend on how rising crude oil costs affected prices in the wider economy.
Policymakers at the Bank of Japan are also keeping their options open before their rate-setting meeting this month, but with fading chances for a rate hike once seen as a strong possibility.
–Reuters–
