US Treasury Secretary on Economic Impact and Security
US Treasury Secretary Scott Bessent told the BBC that a "small bit of economic pain" is justified to ensure long-term international security.
Amid warnings from the International Monetary Fund (IMF) that the US-Israel conflict with Iran could trigger a global recession, Bessent emphasized that the conflict aims to neutralize the threat of Iranian nuclear attacks on Western capitals.
"I wonder what the hit to global GDP would be if a nuclear weapon hit London... I am saying that I am less concerned about short-term forecasts, for long-term security," he said.
It is important to note that Iran does not currently possess nuclear weapons, and the UK government has stated there is "no assessment" that Iran is targeting Europe with missiles.
Bessent expressed greater concern about the security risks posed by Iran than the immediate economic consequences.
"The biggest risk you can take is one you don't know you were taking.
Now we know for a fact that, as the Iranians shot at Diego Garcia, they do have mid-range intercontinental ballistic missiles that could reach London, and we know that they want a nuclear programme," he said.
He added that US and Israeli military actions have mitigated the "tail risk" of Iranian nuclear strikes against Western nations.
At the onset of the conflict, senior US officials reported that Iran possessed uranium enriched to 60%, which could be rapidly enriched to weapons-grade levels, though the country does not have a nuclear weapon.
Previous BBC reports have indicated that the threat of Iranian ballistic missiles targeting London remains remote.
A UK government spokesperson stated:
"There is no assessment Iran is trying to target Europe with missiles.
But we have the military capability we need to keep Britain safe from any kind of attacks, whether it's on our soil or from abroad. We are ready to defend the country, whatever the threat."
IMF Economic Outlook Amid Middle East Conflict
In its World Economic Outlook report, the IMF warned that in a worst-case scenario—characterized by sustained high prices for oil, gas, and food—global growth could fall below 2% in 2026.
"This would mean a close call for a global recession which has happened only four times since 1980," the IMF noted, referencing the most recent occurrence during the Covid pandemic.
Energy prices have surged since the war began over six weeks ago, following the effective closure of the key Strait of Hormuz shipping route and the failure of peace talks between the US and Iran.
The IMF stated:
"Once again, the global economy is threatened with being thrown off course - this time by the outbreak of war in the Middle East at the end of February 2026."
The report outlined that the most severe conditions leading to a global slowdown would involve oil prices averaging $110 per barrel in 2026 and reaching $125 in 2027.
Under these assumptions, inflation could rise to as much as 6% next year, potentially prompting central banks to raise interest rates to curb price increases.
IMF Chief Economist Pierre-Olivier Gourinchas told the BBC that a prolonged conflict would cause escalating inflation, increased unemployment, and food insecurity in some countries.
He warned that even if the conflict ended immediately, the impact on oil supply would be comparable to the 1970s oil crisis, when Arab oil producers imposed an embargo on the US and other nations supporting Israel during the Yom Kippur War.
However, Gourinchas noted that the world’s reduced dependence on oil and fossil fuels would lessen the impact on consumers.
Oil prices have fluctuated during the Iran conflict, peaking near $120 per barrel before falling back to $95 on Tuesday.
The IMF emphasized that the risk of recession would increase only if severe conditions persist for two years.
It further stated that if the conflict is resolved within weeks and Middle Eastern energy production and exports normalize by mid-year, global growth would slow to 3.1% in 2026, down from an earlier forecast of 3.3%, while maintaining a 3.2% growth forecast for 2027.
Regional Economic Impacts
Among advanced economies, the IMF predicts the UK will be most affected by the energy shock from the Iran conflict.
It lowered its UK growth forecast for 2026 to 0.8% from 1.3%, but expects a recovery with 1.3% growth in 2027.
Oil-exporting Gulf nations are projected to experience sharp economic slowdowns or contractions this year.
The IMF estimates Iran’s economy will contract by 6.1% in 2026 but rebound by 3.2% in 2027, assuming the war ends soon. However, this remains uncertain, especially after US President Donald Trump announced a blockade of Iranian ports to halt exports.
Iran has targeted countries such as Qatar, a major liquefied natural gas (LNG) supplier, with missiles and drones.
Qatar’s Ras Laffan LNG refinery, the world’s largest, has been struck and is not expected to resume full operations for some time.
The IMF forecasts Qatar’s economy will shrink by 8.6% in 2026 before growing by 8.6% in 2027.
Iraq, Iran’s neighbor, is also expected to suffer a 6.8% economic slowdown this year but is projected to grow by 11.3% in 2027.
The IMF noted that a country’s economic resilience depends on factors such as damage to energy infrastructure, reliance on the Strait of Hormuz, and availability of alternative export routes.
For example, Saudi Arabia has the East-West pipeline, which runs from the Persian Gulf to the Red Sea and can transport up to 7 million barrels of oil daily.
Saudi Arabia’s growth is expected to slow in 2026 but still expand by 3.1%, with a projected 4.5% growth in 2027.
The IMF stated that most Middle Eastern oil exporters are forecasted to experience an upturn next year, assuming energy production and transportation normalize within months.
However, it cautioned that this assumption may require revision if the conflict’s duration extends or damage assessments worsen.
Global Economic Forecasts and Sanctions
The IMF also reduced its forecast for China’s economic growth to 4.4% in 2026 from 4.5% predicted in January, while maintaining a 4% growth forecast for 2027.
Russia is expected to benefit from higher oil prices, with the IMF projecting 1.1% growth in both 2026 and 2027, exceeding earlier estimates of 0.8% and 1% respectively.
Russia has faced sanctions following its invasion of Ukraine over four years ago. In March, President Trump lifted restrictions on Russian oil exports amid soaring global prices and temporarily eased sanctions on 140 million barrels of Iranian oil for 30 days.
European Commissioner for Finance Valdis Dombrovskis warned against easing sanctions on Russia, stating:
"Energy prices are up, and that gives additional revenues for Russia's war machine.
Now is not the time to ease the pressure on Russia."
