Rising Oil Prices Could Push Up Inflation Globally, IMF Warns

The International Monetary Fund (IMF) has warned that the continuous rise in the price of oil could push up global inflation up by 40 basis points.

The Managing Director of the IMF, Kristalina Georgieva, gave this warning on Saturday in an interview with Bloomberg against the backdrop of the impacts of the ongoing U.S.-Iran conflict.

The warning comes amid escalating hostilities between the U.S. and Iran, which have heightened fears of supply disruptions in the Middle East, a region responsible for roughly a third of global oil production.

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What the IMF boss is saying 

Georgieva noted that the crisis could slow economic growth, urging policymakers around the world to prepare for the ripple effects of the increasing geopolitical uncertainty.

• “What I can tell you from prior experience is that if we are to have an increase of energy prices by 10% and that stays for some time, stays for a year, inflation would go up by 40 basis points, growth will slow down somewhere between 0.1% and 0.2%,” she said.

She added that such an outcome would require policymakers to respond carefully to protect economic stability.

• “In other words, it is an impact that has to be taken into account. So policymakers have to brace for it,” she noted.

The IMF chief also warned that rising energy prices and geopolitical uncertainty could trigger currency volatility, particularly in emerging markets.

She said several emerging market currencies are already experiencing depreciation pressures, which could worsen debt servicing conditions for countries that borrowed heavily in U.S. dollars.

• “We see emerging market currencies depreciating. For those of them that borrowed in dollars, it makes the service of that more expensive,” she said.

However, Georgieva noted that export-oriented economies might benefit slightly from weaker currencies, as it could improve the competitiveness of their exports.

Georgieva also called on governments to exercise caution in their fiscal policies amid the growing uncertainty.

• “For the fiscal authorities in countries, I just want to repeat what we have been saying time and again: be very careful how you deploy your bundles,” she said.

She added that governments should rebuild fiscal buffers during stable periods to prepare for future shocks.

Get up to speed 

Global oil prices have surged in recent weeks as investors react to the possibility that the conflict could disrupt crude exports from the Gulf region.

The Middle East hosts key oil shipping routes, including the Strait of Hormuz, through which about a fifth of the world’s oil supply passes daily.

Brent crude prices surged above $92 per barrel on Friday, extending gains to over 27% this week amid signs emerged that the initial calm in the oil market had evaporated.

• Market participants warned that the global energy market remained too complacent about the risks of a prolonged closure of the Strait of Hormuz.  They warned that without de-escalation of hostilities; prices could hit $100 within days.
• Physical energy markets are already showing stress, with diesel and jet fuel skyrocketing due to refinery cuts in the Middle East and Asia.

Market analysts say the geopolitical risk premium has already pushed crude benchmarks upward as traders factor in the possibility of prolonged tensions or supply shocks.

What you should know 

Iran has launched missile attacks on energy facilities in the UAE, Saudi Arabia, and Qatar, which will lead to further tightening of supplies.

If the Strait remains blocked for several weeks, JPMorgan and Goldman Sachs forecast prices could exceed $100 and even reach $150 by summer’s end.

Former White House official Bob McNally, president of Rapidan Energy Group, says the market is still adjusting to the potential duration of Hormuz’s closure.