The IMF downgraded its forecast for global growth to 3.1% in 2026 from the 3.3% it had forecast back in January. The expected growth would mark a deceleration from a 3.4% expansion in 2025.

U.S. and Israeli strikes on Iran — and Tehran’s closing of the Strait of Hormuz and retaliatory strikes on oil refineries and other energy infrastructure in neighboring countries — have driven oil and gas prices sharply higher around the world.

As a result, the IMF marked up its expectation for global inflation this year to 4.4% from 4.1% in 2025 and from the 3.8% it had forecast for this year in January.

Until the war, the world economy had shown surprising resilience in the face of President Donald Trump’s protectionist policies, which built a wall of import taxes around the United States, the world’s biggest economy and once a market practically wide open to imports. The damage was less than feared partly because Trump’s tariffs last year ended up being lower than what he’d originally announced.

A tech boom, marked by massive investment in data centers and artificial intelligence, and rising productivity also combined to strengthen the world economy.

“War in the Middle East has halted this momentum,” IMF chief economist Pierre-Olivier Gourinchas wrote in a blog post accompanying the fund’s latest World Economic Outlook.

The IMF’s forecast assumes that conflict in the Persian Gulf is short-lived and that energy prices rise “a moderate 19%” this year. Things could be much worse. In a “severe scenario” in which the energy shocks spill into next year and central banks are forced to raise interest rates to combat inflation, global growth could drop to 2% in 2026 and 2027. ”Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” Gourinchas wrote.

The fund slightly downgraded its forecast for U.S. growth this year to 2.3%. The 21 European countries that share the euro currency, hard hit by soaring natural gas prices, will collectively grow 1.1% this year, down from 1.4% in 2025, the IMF forecast.

Hardest hit are likely to be deeply indebted poorer countries that import energy and can’t afford to buffer their economies with stepped-up government spending and tax relief. The IMF sharply lowered the outlook for Sub-Saharan Africa, for instance, to 4.3% this year from the 4.6% it had expected in January.

One winner that’s emerging from the conflict is Russia, an energy exporter that stands to benefit from higher prices. The IMF upgraded its forecast for the Russian economy, hard hit by sanctions following the invasion of Ukraine in 2022, to a still-modest 1.1%.

Meanwhile, the governor of the National Bank of Ukraine has tried to keep Russia’s war in his country at the center of talks among global economic leaders. But in a Monday interview with reporters, Andriy Pyshnyy noted how higher oil prices due the war in Iran are hurting his country.

He said through a translator that annual inflation in March hit 7.9% in Ukraine, well above the forecast of 7% in large part because of higher fuel costs. He estimated that fuel prices could push up annual inflation by 1.5 percentage points to 2.8 percentage points.

Pyshnyy noted that there could also be higher fertilizer and production costs in an economy that is seeking stable prices as part of the ongoing war with Russia, which attacks Ukraine by air on average every 3 to 4 minutes.

“We are trying to walk on a razor blade,” he said of a mission complicated by external factors.

The IMF is a 191-nation lending organization that works to promote economic growth and financial stability and to reduce global poverty.