IMF Warns Middle East Conflict Will Widen Gap Between Rich and Poor Countries

The International Monetary Fund said on Tuesday that prolonged conflict in the Middle East, elevated energy prices, and rapid technological change are likely to widen the economic gap between richer and poorer countries. In its World Economic Outlook released in Bangkok, the fund projected global growth of 3.1 percent in 2026 and 3.4 percent in 2027.

Chief economist Silvana Tenreyro warned that a prolonged Middle East conflict could add further pressure on inflation and slow growth. The headline numbers mask sharp differences across regions. The Middle East and Central Asia is the only major region expected to contract in 2026, largely because of disrupted oil exports through the Strait of Hormuz and related shocks.

Kuwait, Iraq, and Qatar face projected GDP declines of more than 15 percent. Saudi Arabia is forecast to contract by 3.3 percent. Iran’s economy is expected to shrink by 7.6 percent. Countries that import most of their oil and have limited connections to the artificial-intelligence investment boom are the most exposed. The Philippines, which relies on Hormuz for nearly all of its oil, is among those cited as particularly vulnerable.

Advanced economies and some emerging markets linked to technology supply chains have seen stronger performance, supported by AI-related investment. The fund noted that only 32 countries now account for 95 percent of global growth, down from 54 countries in April. Downward revisions have become more widespread, especially among energy importers outside the AI value chain.

Inflation is projected to rise to 4.7 percent this year and 4.1 percent next year. Low-income countries that spend a large share of household budgets on energy and food face the hardest trade-offs. IMF officials said many such countries have little choice but to cut spending or seek debt restructuring, even as higher energy costs hit their populations.

The fund said the global economy would have grown more slowly without recent policy responses, but those effects are fading as the conflict continues. Risks remain two-sided: an intensified war could push inflation higher, while a sudden reassessment of AI profitability could reverse the technology-driven investment that has supported growth in richer economies.

The October outlook therefore describes a bifurcated recovery. Countries with access to technology investment and limited exposure to the energy shock are holding up or improving. Energy-importing developing economies without those offsets are falling further behind. How long the conflict lasts will determine how wide that gap becomes.