IMF warns dwindling energy cushions leave regional economies exposed

The International Monetary Fund says prolonged war in the Middle East and renewed disruptions to energy production, shipping or critical infrastructure pose the largest risk to economies across the Middle East and Central Asia. Its October 15 assessment describes a highly uneven shock, with directly affected countries under severe pressure.

Jihad Azour, director of the IMF’s Middle East and Central Asia Department, set out the outlook at a press conference during the IMF and World Bank annual meetings in Bangkok. Reuters reported his remarks in an article published by CNA.

Azour said the outlook depends on the speed at which energy production and trade normalise, together with countries’ ability to preserve macroeconomic stability. That includes maintaining conditions in which prices and public finances can be managed through the disruption.

Pre-war surpluses, alternative routes, adjustments in demand and substantial drawdowns of inventories have helped contain the energy shock following US-Israeli attacks on Iran and Iran’s subsequent closure of the Strait of Hormuz. Each has provided a way to absorb some loss of normal supply or transport capacity.

Those protections are finite, Azour warned. Inventories are now lower and spare production capacity is tighter. A renewed interruption could therefore produce substantially larger price adjustments, because some of the cushions used during the initial shock are already diminished.

The IMF forecasts a 1.3% contraction in 2026 for its Middle East, North Africa and Pakistan grouping, following 3.3% growth in 2025. It projects a rebound to 6.6% growth in 2027, while emphasising substantial differences between countries.

Oil-exporting states directly affected by the war are expected to suffer significant contractions this year. The fund expects a sharp rebound in 2027 as energy production returns to normal, but still sees output remaining below the medium-term path projected before the war.

That distinction separates a fast growth rate after a downturn from full recovery of the output previously expected. Resuming production can produce a strong annual rebound while leaving an economy below its earlier trajectory.

Azour said oil-importing economies in the region have proved resilient and are expected to remain so. The assessment therefore does not assign the same economic experience to every country merely because it is located in the broader region.

The Caucasus and Central Asia have weathered the shock relatively well. The IMF nevertheless forecasts slower growth: 5.2% in 2026 and 5% in 2027, compared with 6.2% in 2025. Inflation is expected to continue declining from elevated levels.

Azour urged policymakers to prioritise price stability, rebuild fiscal buffers and expand their ability to withstand future shocks. Fiscal buffers are financial cushions that help a government respond when income falls or spending needs rise unexpectedly.

The fund’s projected recovery depends on the return of more normal energy production and trade. Further disruption would test both the remaining supply cushions and the financial capacity available for a policy response.