Global institutions warn of Iran war's economic risks

The heads of four major global institutions— the International Energy Agency, International Monetary Fund, World Bank, and World Trade Organization—warned on May 29 that the U.S.-Israel war on Iran is straining global energy supplies and disproportionately affecting vulnerable economies through higher fuel and fertilizer prices, increased uncertainty, and risks to employment. The conflict has disrupted trade, rattled financial markets, and raised significant concerns over the Strait of Hormuz, a critical waterway for oil and gas shipments. U.S. President Donald Trump announced he would decide that same day on a potential ceasefire extension with Iran that would require reopening the waterway and dismantling Tehran's nuclear weapons capacity. The institutions stated that while the world economy remains resilient, the conflict poses serious risks if shipping flows do not normalize. They warned that continued rapid depletion of global oil inventories ahead of peak summer demand in the Northern Hemisphere would present increasing risks for fuel security, market conditions, and broader economic stability. Separately, India's Department of Economic Affairs said in its May Monthly Economic Review that the country's economic outlook is one of "cautious resilience," though it cautioned that the Middle East conflict, rising crude oil prices, and the possibility of a weaker monsoon could challenge growth and fuel inflationary pressures. Despite these risks, the DEA noted that domestic fundamentals remain intact, with manufacturing and services activity expanding, labor markets stable, and foreign exchange reserves providing insulation against external shocks. India flagged the Strait of Hormuz disruption as the single most consequential variable for its external and price outlook, while also noting that wholesale inflation jumped to 8.3% in April 2026, signaling upstream cost pressures that may eventually pass through to consumers. The department highlighted that gross foreign direct investment inflows reached a record $94.5 billion in fiscal year 2026, indicating sustained long-term investor interest. The global institutions concluded that navigating the economic impact of the conflict will require careful policy coordination, with particular attention to protecting poorer nations from the harshest effects of energy supply disruptions and price volatility.