According to reports from the International Monetary Fund, global economies have demonstrated greater resilience than expected in handling the West Asia-triggered energy supply shock. As reported by the IMF, this assessment comes as the organization's Managing Director Kristalina Georgieva spoke at a briefing ahead of next week's Group of 20 finance leaders meeting in Asheville, North Carolina. Speaking from IMF headquarters in Washington, Georgieva emphasized that "we have literally a tug of war between the negative supply shock from the Middle East and the positive demand shock from AI." She told reporters that "global growth is resisting powerful headwinds from high debt levels, stubborn inflation, and trade tensions. Thus far, it has weathered the energy shock caused by the closure of the Strait of Hormuz better than we feared, thanks to a combination of factors." The IMF did not issue a fresh growth forecast, maintaining its 2026 global growth projection at 3% set in July, but warned that the risks to the global outlook were more balanced than in April, though they remained tilted to the downside.
As reported by the IMF, the global economy faces what Georgieva described as a 'tug of war' between the positive impacts of the AI investment boom and negative effects of the energy shock. According to the IMF Managing Director, the AI investment boom is now beginning to cross US borders, creating new economic dynamics that are reshaping global growth patterns. "What started out as a US phenomenon with AI is now becoming a growth engine for the global economy, with other countries ramping up construction of data centres and other infrastructure," Georgieva told journalists on Tuesday. The IMF's July numbers showed the global picture staying roughly steady, with the organization leaving its 2026 growth forecast near 3% but raising its consumer price forecast due to energy and food costs. This balanced growth outlook reflects the ongoing tension between AI-driven demand and Middle East supply constraints, with strong AI investment providing an important counterweight to the energy shock. Thailand has been mentioned as one example of countries ramping up AI infrastructure, demonstrating the global spread of AI investment beyond the United States.
According to the IMF assessment, several factors helped ease the energy crisis beyond the initial supply disruption. As reported by the IMF, these mitigating factors included drawdowns of oil and gas reserves by many countries, increases in non-Gulf energy supplies, lower energy demand, increased renewable energy capacity and a shift back to coal power generation in some places. These developments helped the global economy weather the energy shock caused by the closure of the Strait of Hormuz better than initially feared. The energy outlook could remain challenging as the northern hemisphere heads into winter, with further disruptions to shipments through Hormuz and risks to Russia's energy infrastructure potentially pushing heating-oil prices higher and adding to inflationary pressures.
The conflict has challenged conventional assumptions about where investors seek protection during periods of geopolitical stress. According to Reuters, the U.S. dollar has gained about 1.4% against a basket of major currencies since the conflict began, though much of the move has reflected weakness in the Japanese yen. U.S. Treasuries, traditionally regarded as one of the world's most important safe-haven assets, have instead generated negative returns. Ten-year and other government bond holdings have been pressured by concerns over inflation and reduced expectations for Federal Reserve interest-rate cuts, with questions surrounding new Federal Reserve Chair Kevin Warsh and Washington's debt-management plans adding further uncertainty. Gold has also followed an unusual path, falling almost 25% between the beginning of the conflict and July despite having more than tripled since 2022, before rebounding sharply with gains of more than 15% this month as concerns about the long-term value of the U.S. dollar returned.
The conflict's effects are extending beyond energy markets, with disruptions to shipping through the Strait of Hormuz affecting fertiliser supplies and creating another potential threat to global agricultural production. According to Reuters, the fertiliser disruption is occurring alongside the effects of a strong El Niño and further interruptions to grain shipments associated with the war in Ukraine. Global food prices increased in July to their highest level in more than three years, according to the U.N. Food and Agriculture Organization. The FAO has warned of the possibility of another period of food inflation, while JPMorgan estimates that a strong El Niño could, at its peak, increase global food inflation by around 0.7%. The consequences could be particularly severe in Asia, Latin America and Africa, where food represents a larger share of household spending and governments remain sensitive to renewed inflationary pressures.
The Gulf region has suffered the most direct economic consequences from the conflict, with Saudi Arabia's exports falling 10% between the first and second quarters. According to Reuters, JPMorgan estimates property sales in Dubai have plunged between 70% and 80%, while Qatar faces particularly significant risks due to damage to its Ras Laffan gas facility. Oxford Economics estimates that Qatar's economy could contract by almost 30% this year as a result of the disruption. Stock markets across the region have also underperformed global equities, with Qatar and the United Arab Emirates each declining by around 14%, representing an underperformance of more than 20 percentage points compared with world stocks. The cost of insuring Gulf sovereign debt against default has increased, with Bahrain facing the sharpest deterioration, with its credit-default swap prices rising by almost 40%.
