Jakarta. International Monetary Fund (IMF) warned that the latest energy shock triggered by the Middle East conflict is comparable in scale to the 1970s oil crisis, but said the global economy’s trajectory will depend heavily on how policymakers respond.

IMF said disruptions to energy supply, particularly through the Strait of Hormuz, have sharply lifted oil and gas prices, raising the risk of a broader economic slowdown and renewed inflation pressures worldwide.

“If the conflict were to stop today, the oil shortfall for the year would be comparable to the 1970s shock,” IMF Economic Counsellor Pierre-Olivier Gourinchas said in a press briefing for World Economic Outlook 2026 April edition on Tuesday, referring to the 1974 oil crisis that triggered a period of global stagflation.

Despite the similarities, the IMF highlighted key differences that could help the global economy avoid a repeat of that episode. The world is now less dependent on oil, with more diversified energy sources, while central banks have stronger credibility and clearer mandates to maintain price stability.

Still, risks remain elevated.

The Fund projected global growth will slow to 3.1% this year under its baseline scenario, with inflation rising to 4.4% as energy prices climb. In a more adverse scenario, growth could fall to 2.5%, while inflation may accelerate to 5.4%. Under a severe and prolonged disruption, global growth could drop to around 2%, with inflation exceeding 6%.

IMF warned that rising energy costs act as a negative supply shock, pushing up production costs, disrupting supply chains, and eroding household purchasing power. These pressures could be amplified if businesses and workers attempt to offset losses, raising the risk of a wage-price spiral.

Unlike in the 1970s, however, central banks are not expected to immediately tighten policy aggressively. The IMF said monetary authorities can afford to “wait and watch” as long as inflation expectations remain anchored, but must be ready to act decisively if price pressures become entrenched.

On the fiscal side, IMF cautioned against broad subsidies or price controls, noting that many governments now have limited fiscal space after years of rising debt. Instead, support should be targeted and temporary, aimed at protecting the most vulnerable households.

IMF also pointed to tightening global financial conditions as another transmission channel of the shock. Heightened uncertainty has driven investors toward safe-haven assets, strengthening the US dollar and increasing borrowing costs for emerging markets.

While the immediate focus remains on stabilizing energy markets, the Fund said the current crisis could accelerate structural shifts, including investment in renewable energy and diversification of trade partnerships.

“The lesson from the 1970s is clear,” Gourinchas said. “You don’t want a relative price shock to turn into a sustained inflation problem.”

IMF added that a swift resolution to the conflict and the reopening of key energy routes would be critical to limiting long-term damage to the global economy.

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