The global economy faces significant downside risks if the fragile ceasefire between the United States and Iran collapses, according to a senior International Monetary Fund (IMF) official, who warned that recent stability in oil markets may prove temporary.
Pierre-Olivier Gourinchas said in remarks to Reuters that emergency withdrawals from strategic oil reserves helped prevent a sharper spike in energy prices during the recent Middle East conflict. However, he cautioned that this buffer is now largely depleted, leaving countries with far less capacity to absorb future supply shocks.
Gourinchas noted that strategic petroleum reserves were drawn down more aggressively than anticipated, helping offset disruptions in global supply flows. He estimated that only around 3% of global oil supply was effectively removed from the market, compared with earlier expectations of 10% to 15%.
Despite this, he warned that the remaining emergency capacity is limited, reducing policymakers’ ability to stabilize markets if tensions escalate again.
The IMF official stressed that while coordinated production adjustments and reserve releases helped avoid extreme price spikes, underlying risks remain elevated. A breakdown in the ceasefire, he said, could quickly reintroduce volatility into global energy markets and financial conditions.
Recent geopolitical developments, including renewed accusations between Washington and Tehran over maritime incidents near the Gulf of Oman, have underscored the fragility of the current truce.
Gourinchas also pointed to ongoing internal discussions at the IMF regarding its forecasting approach, including whether to maintain multiple scenario-based projections or return to a single baseline outlook.
He said the current environment of heightened uncertainty, driven by geopolitical fragmentation and trade tensions, has made traditional forecasting more difficult, requiring economists to rely more heavily on scenario analysis rather than point estimates.
Earlier IMF assessments suggested that global growth could slow significantly under adverse geopolitical scenarios, particularly if energy disruptions persist or intensify. In a more optimistic case, growth had been projected at around 3.1%, while a downside scenario placed it closer to 2.5%.
Gourinchas emphasized that recent events highlight how quickly conditions can shift, reinforcing the need for flexible policy responses and cautious forecasting.
Beyond energy markets, the IMF official highlighted a broader structural shift in global trade patterns following recent tariff measures introduced by the United States.
He pointed to a rapid acceleration in new trade agreements between major economies outside the U.S., including deals involving the European Union with Latin America and India, as evidence of growing diversification in global supply chains.
According to Gourinchas, these developments suggest that countries are increasingly seeking to reduce reliance on single trade partners, accelerating the fragmentation of global commerce.
Gourinchas also questioned the long-term effectiveness of tariffs and economic sanctions as policy tools, arguing that while they may provide short-term leverage, markets and firms tend to adapt quickly by rerouting trade, forming new partnerships, or innovating around restrictions.
“In the end, these tools often lose effectiveness over time,” he noted, emphasizing the adaptive nature of global economic actors.
Follow the latest news on Google News
