US Treasury Secretary Scott Bessent has declared that a “small bit of economic pain” is a worthwhile trade-off for ensuring long-term international security, a stance articulated to the BBC amidst stark warnings from the International Monetary Fund (IMF) regarding a potential global recession stemming from the US-Israel war with Iran.
Bessent underscored his focus on enduring security over immediate economic forecasts, questioning the broader economic impact of a catastrophic event. “I wonder what the hit to global GDP would be if a nuclear weapon hit London… I am saying that I am less concerned about short-term forecasts, for long-term security,” he stated. The Treasury Secretary emphasized that the ongoing conflict aims to neutralize the threat of Iranian nuclear strikes on Western capitals. According to senior US officials, Iran possessed uranium enriched to 60% at the war’s outset, though it does not currently possess nuclear weapons. Bessent highlighted intelligence suggesting Iran’s capabilities, noting, “Now we know for a fact that, as the Iranians shot at Diego Garcia, they do have mid-range intercontinental ballistic missiles that could reach London, and we know that they want a nuclear programme.” He further asserted that US and Israeli military actions have successfully mitigated the “tail risk” of such strikes.
However, the UK government offers a more tempered assessment. A spokesperson stated there is “no assessment” that Iran is attempting to target Europe with missiles, a view echoed by previous BBC reporting which described the threat of Iranian ballistic missiles to London as remote. The UK government maintains it possesses the necessary military capabilities to safeguard Britain from any form of attack, whether domestic or foreign.
IMF’s Dire Economic Projections
The IMF, in its latest World Economic Outlook report, painted a grim picture of the global economy’s vulnerability. In a worst-case scenario, characterized by sustained high oil, gas, and food prices throughout this year and next, global growth could plummet below 2% in 2026. Such a contraction, the IMF noted, would represent a “close call for a global recession which has happened only four times since 1980,” with the most recent instance occurring during the Covid pandemic. The conflict, which commenced more than six weeks ago at the end of February 2026, has already seen energy prices soar following the effective closure of the crucial Strait of Hormuz shipping route and the failure of peace talks between the US and Iran.
Under these severe conditions, the IMF projects oil prices could average $110 per barrel this year and climb to $125 in 2027. Consequently, inflation could reach as high as 6% next year, potentially compelling central banks worldwide to raise interest rates to curb price increases. IMF chief economist Pierre-Olivier Gourinchas warned the BBC that a prolonged conflict would trigger spiralling inflation, escalate unemployment, and exacerbate food insecurity in various countries. Gourinchas drew parallels to the 1970s oil crisis, suggesting that even an immediate cessation of hostilities could result in an impact on oil supply comparable to the fallout from the Arab oil embargo. Nevertheless, he offered a glimmer of optimism, noting that the world’s reduced dependence on oil and fossil fuels would likely mitigate the severity of the impact on consumers.
Nuanced Forecasts and Regional Economic Impacts
Despite the dire warnings, the IMF also presented a more optimistic outlook contingent on a swift resolution to the conflict. If the war concludes within the next few weeks and energy production and exports from the Middle East normalize by mid-year, global growth is forecast to ease to 3.1% for 2026, a slight reduction from an earlier prediction of 3.3%. The projection for global growth next year remains unchanged at 3.2%. Oil prices, which surged close to $120 during the conflict, had fallen back to $95 a barrel on Tuesday. The IMF emphasized that the risk of a recession would only materialize if severe conditions persisted for two years.
Among advanced economies, the UK is projected to be the hardest hit by the energy shock from the Iran war, with its growth estimate for this year cut to 0.8% from a previous 1.3%. However, the IMF anticipates a recovery to 1.3% economic expansion next year. Oil-exporting nations in the Gulf are also expected to experience a significant slowdown or even contraction this year. Iran’s economy is forecast to shrink by 6.1% this year, with a potential rebound of 3.2% in 2027, provided the war ends soon. Qatar, whose Ras Laffan LNG refinery was struck, is predicted to see an 8.6% economic contraction in 2026 before an equivalent rebound next year. Iraq is also expected to take a 6.8% economic hit this year, recovering to 11.3% growth in 2027. Saudi Arabia, bolstered by its East-West pipeline, is forecast to experience slower but still positive growth of 3.1% this year and 4.5% next year. China’s growth forecast for 2026 was marginally cut to 4.4% from 4.5%, with its 2027 projection remaining at 4%.
Conversely, Russia has emerged as an unexpected beneficiary of the surge in oil prices. The IMF forecasts Russia’s economy to grow by 1.1% this year and next, surpassing earlier predictions. This comes after US President Donald Trump removed restrictions on Russian oil exports as global prices soared, and temporarily lifted sanctions on 140 million barrels of Iranian oil for 30 days. European Commissioner for finance Valdis Dombrovskis cautioned against easing sanctions on Russia, arguing that the country was “emerging as a winner from this war” due to increased energy revenues fueling its war machine. “Now is not the time to ease the pressure on Russia,” Dombrovskis stated at an event on the sidelines of the IMF summit in Washington.
The unfolding conflict in the Middle East presents a complex interplay of geopolitical security imperatives and profound economic risks. While US Treasury Secretary Bessent prioritizes the long-term elimination of perceived threats, the IMF’s detailed forecasts underscore the immediate and potentially severe economic repercussions for global growth, inflation, and specific national economies, highlighting the delicate balance between security objectives and economic stability.
