The International Monetary Fund warned Tuesday that the US-Israeli war on Iran could slow global economic growth, stoke inflation, and increase the possibility of a worldwide recession and energy crisis.
The war being waged by US President Donald Trump and the government of Israeli Prime Minister Benjamin Netanyahu has already had wide-ranging negative impacts on the global economy, from soaring fuel prices caused by the closure of the Strait of Hormuz to supply chain disruptions and financial market volatility.
Although a major global economic crisis has thus far been averted, that could soon change.
“Despite major trade disruptions and policy uncertainty, last year ended on an upbeat note,” IMF director of research Pierre-Olivier Gourinchas wrote in an analysis for the organization’s latest “World Economic Outlook” report. “The private sector adapted to a changing business environment, while powerful offsets came from lower US tariffs than originally announced, some fiscal support, and favorable financial conditions coupled with strong productivity gains and a tech boom.”
“Despite some downside risks, the momentum was expected to carry over into 2026, lifting the pre-conflict global growth forecast to 3.4%,” Gourinchas continued. “War in the Middle East has halted this momentum. The closing of the Strait of Hormuz and serious damage to critical facilities in a region central to global hydrocarbon supply raise the prospect of a major energy crisis should hostilities continue.”
The IMF said that even if the war ends quickly, lasting damage to the world’s economy will still happen.
According to the IMF report:
Under the assumption of a limited conflict, global growth is projected at 3.1% in 2026 and 3.2% in 2027, below recent outcomes and well under pre-pandemic averages. Global inflation is expected to tick up in 2026 and resume its decline in 2027. Pressures are concentrated in emerging market and developing economies, especially commodity importers with preexisting vulnerabilities. Risks are decisively on the downside. A prolonged conflict, deeper geopolitical fragmentation, disappointment over AI-driven productivity or renewed trade tensions could weaken growth and unsettle markets. High public debt and eroded policy buffers add vulnerability. Policies should foster adaptability, enhance credibility, and reinforce international cooperation.
The IMF said that “the shock’s ultimate magnitude will depend on the conflict’s duration and scale – and how quickly energy production and shipment normalize once hostilities end,” and that effects will vary by location.
“Countries will feel the impact differently,” Gourinchas wrote. “As in past commodity-price surges, importers are highly exposed. Low-income a and weaker tourism and business activity. Remittances will fall in countries that supply migrant workers to the region.”
Eric LeCompte, executive director of the religious development group Jubilee USA Network and a United Nations finance expert, called the new IMF forecast “extremely concerning for the global economy,” lamenting that “the most dire impacts of our economic situation will be felt by the poor and the vulnerable.”
The new report comes as the IMF’s annual Spring Meetings are underway in Washington, DC.
“World leaders coming to Washington are receiving a very dark picture of the global economy,” said LeCompte. “The war is causing greater poverty and increases in our fuel and food costs.”
Trillion dollar price tag
A Harvard expert who specializes in looking beyond official government estimates to calculate the true financial cost of US wars has said she is “certain” the price tag of Trump’s assault on Iran will eventually reach at least $1 trillion, once benefits for troops, replenishment of munition stockpiles, borrowing costs, and other factors are fully taken into account.
“We are borrowing to finance this war at higher rates, on top of a much larger debt base,” Linda Bilmes, the Daniel Patrick Moynihan senior lecturer in public policy at the Harvard Kennedy School, said in a recent interview. “The result is that the interest costs alone will add billions of dollars to the total cost of this war. And unlike the upfront costs, these are costs we are explicitly passing on to the next generation.”
Bilmes, who co-authored The Three Trillion Dollar War: The True Cost of the Iraq Conflict with Nobel laureate economist Joseph Stiglitz, estimates that the first several days of the US-Israeli assault on Iran cost American taxpayers at least $16 billion – significantly more than the Pentagon’s official figure, $11.3 billion.
“The short-term costs are even higher than they appear,” Bilmes emphasized. “The Pentagon reports costs based on the historical value of inventory, instead of the actual cost it takes to replace what we are using. And those replacement costs are far higher.”
Bilmes also pointed to the substantial costs of “large, multi-year contracts” that the Trump administration has inked with arms manufacturers such as Lockheed Martin.
Over the long-term, said Bilmes, the cost of veterans’ care will be massive. “We now have roughly 55,000 US troops deployed in this conflict who have been exposed to toxins, contaminants, and environmental hazards, such as burning fuel and chemical residues that we know can cause long-term harm,” she noted. “If even one-third of the 55,000 troops deployed today claim benefits, then we are committing ourselves to tens or hundreds of billions of dollars in disability and medical care costs for this cohort alone.”
“I am certain we will spend $1 trillion for the Iran war,” Bilmes said. “Perhaps we have already racked up that amount.”
The Trump administration is expected to request that Congress approve between $80 billion and $100 billion in funding for the Iran war, according to The Washington Post. Earlier this month, the Trump White House released a budget proposal that called for $1.5 trillion in military spending next fiscal year.
Bilmes noted that if Trump’s request is fully enacted, US military spending will rise “to levels about 20% higher than the peak reached during World War Two.”
“This raises the baseline,” Bilmes said. “Even if Congress does not agree to approve the full increase, it is highly likely that at least $100 billion per year will be added to the base defense budget that would not have been approved in the absence of this war.”
“And once that increase is built into the base,” she added, “it raises the baseline and compounds – so an additional $100 billion per year is $1 trillion over the next decade.”
Others chime in
Others have also warned of the adverse economic effects of the US-Israeli war on Iran.
Ben May, Bridget Payne and Paul Moroz of Oxford Economics recently published a report warning that a longer war in Iran “could tip the global economy into recession.”
In such a situation, “the Gulf states suffer most acutely – GDP down over 8% in 2026 – before rebounding sharply as production recovers,” they wrote. “Advanced Asian economies, which are especially reliant on Gulf oil, take a heavy blow from energy import cost surges and supply chain disruption.”
“Europe faces a painful squeeze on gas and electricity,” the trio added. “The US fares somewhat better given its domestic energy production, but an equity market decline of nearly 20% weighs heavily on consumer spending.”
Some US-based organizations have focused on the war’s domestic economic impacts.
Dean Baker, a senior fellow at the Center for Economic Policy Research, published an analysis earlier this month asserting that “making enemies makes us poorer.”
“Secretary of Defense (or War) Pete Hegseth seems to be having a really great time killing people in Iran, but his live action video games come at a big cost – not just in lives, but in budget dollars,” Baker wrote. “To be clear, the main reason to oppose this pointless war is its impact on the people of Iran and elsewhere in the region. But it also has a huge economic cost that is seriously underappreciated.”
“In addition to reducing our security and jeopardizing the well-being of people around the world, Donald Trump’s belligerence will cost us a huge amount of money,” he said. Focusing on US military spending, Baker noted that “Trump wants the country to spend 5% of GDP, or $1.5 trillion a year, on the military. This comes to $12,000 per household.”
Trump and his Republican Party are seeking to offset some of their record military spending with devastating cuts to social programs upon which tens of millions of Americans rely. Already reeling from the biggest cuts to Medicaid and Supplemental Nutrition Assistance Program spending in those programs’ histories, Trump’s budget request for fiscal year 2027 contains $73 billion in total reductions in nondefense spending.
“It is striking to see that Congress might be willing to quickly cough up this money,” said Baker, referring to military funding, “when it has refused far smaller sums that could have made a huge difference in the lives of tens of millions of people.”
