Alarm over the impact of the Iran war on the global economy grew on 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-19 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 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.
Countries signal support as shock mounts
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 to fuel price relief for consumers and businesses worth €1.6-billion (R31-billion) via cuts to levies on diesel and petrol.
“This war is the real cause of the problems we are experiencing in our country as well,” Chancellor Friedrich Merz said at a press conference.
Sweden’s government said it would also cut fuel taxes and hike electricity subsidies in a package worth around $825-million (R14-billion).
“It is a signal that we will do whatever is necessary to … dampen the blow to households of what is happening now,” Finance Minister Elisabeth Svantesson told reporters.
British finance minister Rachel Reeves is due later this week to set out her approach to helping businesses struggling with high energy prices.
In a column for the Sunday Times, she wrote that UK manufacturers had “faced uncompetitive energy prices for too long”.
Upending central bank policy
Separately, Prime Minister Keir Starmer referred to conflict around the world as he explained his government’s plans to realign with the European Union and its large single market, a decade after his country voted in favour of leaving the EU.
“We’re in a world where there’s massive conflict and great uncertainty, and I strongly believe the UK’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 vice-president Luis de Guindos said on Monday any European Central Bank 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 considered a strong possibility. — Reuters
- The Iran war is causing a major global economic shock, following Covid-19 and Russia’s invasion of Ukraine, leading to increased energy costs and emergency support measures by multiple countries.
- Talks between the US and Iran failed to restart oil shipments through the Strait of Hormuz, deepening concerns over fuel supply disruptions and economic impacts.
- The IMF and World Bank are expected to lower global growth forecasts and raise inflation estimates, with emerging markets and developing countries facing the most severe effects.
- Countries like Nigeria, Germany, Sweden, and the UK are implementing or planning fiscal measures such as fuel tax cuts and subsidies to protect consumers and businesses from soaring energy prices.
- The conflict is complicating central bank policies worldwide, potentially resulting in stagflation, with key institutions like the European Central Bank and Bank of Japan reconsidering their interest rate strategies.
Alarm over the impact of the Iran war on the global economy grew on
Nigeria said on
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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.
"
Sweden's government said it would also cut fuel taxes and hike electricity subsidies in a package worth around $825-million (R14-billion).
"It is a signal that we will do whatever is necessary to ... dampen the blow to households of what is happening now," Finance Minister
In a column for the
Separately, Prime Minister Keir Starmer referred to conflict around the world as he explained his government's plans to realign with the European Union and its large single market, a decade after his country voted in favour of leaving the EU.
"We're in a world where there's massive conflict and great uncertainty, and I strongly believe the UK's best interests are in a stronger, closer relationship with Europe," he told BBC radio.
European Central
Policymakers at the
