Nigeria and other countries able to export oil and gas without hitches despite the ongoing Middle East crisis will face the smallest headwinds or risks, the Managing Director, International Monetary Fund (IMF), Kristalina Georgieva has said.
A report: “How the Middle East War Has Affected Oil Exporters and Importers”, released at the weekend, explained her position, highlighting that countries directly hit by the conflict, including major oil and gas exporters in the Middle East, bear the brunt of the impact.
The report explained that countries face vastly different exposure to higher oil prices and supply uncertainty, shaped by whether they import or export, and how much policy space they have to respond.
Already, the war in the Middle East has disrupted oil and gas flows and darkened the global economic outlook.
“So, do oil-importing nations where imports loom large as a share of gross domestic product. How severe that burden becomes for these importers depends critically on their policy space, proxied in the charts below by their sovereign credit ratings,” the report said.
Explaining that most countries are net oil importers, the Fund said the war’s direct hits have fallen heavily on exporters, adding that the shock is global, but the burden is uneven.
In her Spring Meetings curtain raiser speech, Georgieva, said a resilient world economy is being tested again by the war in the Middle East.
“The conflict has caused considerable hardship around the globe. My heart goes out to all people affected by this war and all wars.
Our focus remains on how best to weather this latest shock and ease the pain on economies and people. This requires understanding the nature of the shock, the channels through which it affects the economy, the size of the impact, and the policies that can mitigate it,” she said.
According to her, the global economy was hit by a supply shock that is large, global, and asymmetric: “It is large because the world’s daily oil flow cut by some 13 percent, and its LNG flow by some 20 percent; It is global because all of us now paying more for energy and with supply chains disrupted across the world; And it is asymmetric because its impact depends on proximity to the conflict, whether you are an energy exporter or importer, and your policy space. As always, a negative supply shock pushes prices up,” she said.
She disclosed that the supply interruptions have had—and will for some time continue to have—ripple effects, such as: Oil refinery disruptions given the need to maintain minimum flow rates, with warning lights flashing red in many far-flung places; Shortages of refined products including diesel and jet fuel, which have disrupted transportation, trade, and tourism in a world more interconnected than ever,” among others.
“Also being impacted is the food insecurity for another 45 million people given the transport issues—taking the total number of people in hunger to over 360 million—with the problem potentially worsening over time because of higher fertilizer prices; and supply chain disruptions given industrial dependencies such as on sulfur, helium for silicon chipmaking and MRI imaging, and naphtha for plastics,” she said.
She further explained that the price impact and supply shortages. Higher prices for key inputs feed into many consumer goods, lifting inflation. This, coupled with shortages, reduces demand by brute force.
As the world responds, Georgieva said it is important that global economies maintain collective quest for energy efficiency and energy diversification. Different countries have different paths to energy security, but all must strive for it.
“So, the reality is, we don’t truly know what the future holds for transits through the Strait of Hormuz or, for that matter, for the recovery of regional air traffic. What we do know is that growth will be slower—even if the new peace is durable,” she said.
She added that with oil being a global commodity, even oil exporters far from the affected region and enjoying terms-of-trade gains have felt the effects of costlier oil.
On way out, she advised policymakers to help in multiple ways, and—certainly—they must be careful not to make things worse. “So, here I appeal to all countries to reject go-it-alone actions—export controls, price controls, and so on—that can further upset global conditions: don’t pour gasoline on the fire. Beyond that, as in past shocks, alertness and agility are key,” she said.
“Next, if inflation expectations threaten to break anchor and ignite a costly inflation spiral, then central banks should step in firmly with rate hikes. Fiscal support should remain targeted and temporary. Rate hikes, of course, would further dampen growth—that’s how they work,” she said.
Finally, if a severe tightening of financial conditions adds a negative demand shock to the supply shock, then monetary policy returns to a delicate balancing act while fiscal policy—if and only if there is fiscal space—switches to well-calibrated demand support.
Given the spillovers of the Middle East war, the IMF expects near-term demand for balance-of-payments support to rise and to range from $20 billion to $50 billion, with the lower bound prevailing if the ceasefire holds.
