Middle East conflict, soaring debt threaten global growth at IMF-World Bank talks

Finance ministers and central bankers from around the world are converging on Bangkok this week for the annual meetings of the International Monetary Fund and World Bank, but the gathering carries an unusual weight. An eight-month-old war between the US and Israel against Iran has upended global energy markets, sent inflation spiraling, and raised interest rates at precisely the moment when the world economy is already struggling to gain momentum. The combination of these forces—military conflict, energy scarcity, and tightening credit—now threatens to slow growth even further, and the officials arriving in Thailand know it.

The conflict has already reshaped the global oil market in ways that ripple through every economy. When Iran closed the Strait of Hormuz, it cut off roughly one-fifth of the world's oil supply. The Group of Seven nations responded by releasing 100 million barrels from emergency reserves, and the US struck a deal with Russia to flood markets with additional diesel—a move that drew sharp criticism from Ukraine's president, who saw it as a betrayal amid his own country's war. More than a billion barrels have been released since fighting began on February 28, mostly from commercial inventories onshore. But industry executives warn that accessible reserves are thinning, leaving markets vulnerable to further shocks.

World Bank President Ajay Banga told Reuters that while the initial fears about a total supply collapse have not materialized, new pressures are building. Diesel prices have soared. Fertilizer costs are climbing. And a powerful El Niño weather pattern is bearing down on the planet—one so severe that experts project it could cause 450,000 heat-related deaths. These forces are not hitting in isolation. They are converging. "It's the combination," Banga said, speaking of energy costs, fertilizer prices, and debt all pressing down at once. "That put together that creates its own challenges."

The debt crisis is the deeper problem. The International Monetary Fund has announced that public debt worldwide has reached its highest level since World War Two and will exceed 100 percent of GDP before 2030. Advanced economies, led by the United States, carry the largest debt burdens relative to their economic output. But developing nations face a far more precarious situation. They are losing capital to investors chasing higher returns in US markets. They are being battered by El Niño. They lack the investment in artificial intelligence that has helped wealthy countries absorb economic shocks. And they must refinance their debts at interest rates far higher than they were just months ago. In developing countries, interest payments already consume more than 10 percent of government revenue on average.

The IMF is tightening its conditions for lending to struggling nations—demanding fewer but deeper reforms in exchange for loans. Iolanda Fresnillo, who works on debt justice for the European Network on Debt and Development, warned that this approach will force countries into painful austerity measures at exactly the wrong moment. Kenya, she noted, avoided a debt restructuring by slashing public spending and raising taxes, but the moves sparked significant protests, particularly among young people. "Countries are already cutting their expenditures because their debt payments are going high and because of the IMF conditionality," Fresnillo said. "We fear that this review of conditionality policy is just going to make things worse."

The absence of US Treasury Secretary Scott Bessent from the Bangkok meetings signals something about the moment. He sent two senior officials in his place while attending to domestic matters—a decision that may frustrate other nations at a time when tensions over the Iran war, Ukraine's survival, and US sanctions on the International Criminal Court are already high. The US leads the Group of 20 this year, and its seat at the table matters. Josh Lipsky, vice president of international economics at the Atlantic Council, noted that finance officials three years ago dismissed the Hamas attack on Israel as separate from economic concerns. They were wrong. "Obviously there have been massive global ramifications," he said. "What we're currently experiencing with Iran and the closure of the Strait of Hormuz has a direct connection with what happened three years ago."

IMF Managing Director Kristalina Georgieva opened the week with a stark warning: "Winter is coming." The Fund is holding its forecast for 3 percent global growth in 2026, though some countries will see their outlooks cut. Ukraine, now in its fifth year of war, faces downgrades. So do Gulf nations hit by Iranian strikes and reduced energy exports. The real test for policymakers in the coming months will be whether they can move faster and more creatively than they have in the past. The world they inhabited before—one where finance and geopolitics could be treated as separate domains—no longer exists. The question now is whether they can adapt quickly enough to the one they actually inhabit.