The International Monetary Fund published its April 2026 World Economic Outlook on the 14th of this month under the title ‘Global Economy in the Shadow of War.’ The title is accurate. What follows it requires closer reading than most coverage has provided.
The WEO is structured around three scenarios, each built on a different assumption about how the war in the Middle East unfolds. The reference scenario, which provides the headline numbers for the official forecast, assumes a short-lived conflict and a return to regular energy shipments through the Strait of Hormuz by mid-year. Under this assumption, global growth slows to 3.1 per cent in 2026, with Brent crude averaging $82 per barrel for the year.
The adverse scenario assumes a longer conflict, oil at approximately $100 per barrel through 2026, rising inflation expectations, and some tightening of financial conditions. Growth falls to 2.5 per cent.
The severe scenario assumes an extended and deepening conflict, oil averaging $110 per barrel in 2026 and $125 in 2027, sharp financial market dislocations, and substantially tighter financial conditions worldwide. Growth falls to 2 per cent — what the IMF itself describes as a ‘close call for a global recession,’ a threshold the world has crossed only four times since 1980.
The IMF chose the most optimistic of its three scenarios as the basis for its official forecast. At the time of publication, the observable data was already tracking closer to the adverse case.
What the reference scenario assumes
To arrive at 3.1 per cent growth and $82 oil, the reference scenario requires several things to be true. The conflict must end quickly. Traffic through the Strait of Hormuz must resume, even if not to pre-conflict levels. Shut-in oil production — which reached 9.1 million barrels per day in April, according to the IEA — must gradually return. And the global economy must absorb a temporary energy price shock without a sustained increase in inflation expectations.
Each of these assumptions was under pressure at the time the WEO was published. On April 12, the United States announced a naval blockade of the Strait after peace talks in Islamabad failed. On April 18, Iran declared the Strait closed again in response. On April 19, the US seized an Iranian-flagged cargo ship after firing on its engine room. Brent crude was trading at approximately $96 per barrel — seventeen per cent above the reference scenario’s annual average assumption.
The IEA’s own Oil Market Report, published the same week, was more direct. Physical crude oil prices had briefly surged to record levels near $150 per barrel in March, far above futures markets, with refiners scrambling to replace locked-in Middle Eastern cargoes. Middle distillate prices in Singapore reached all-time highs. Global oil supply fell by 10.1 million barrels per day in March — the largest disruption in recorded history.
Why the IMF chose the optimistic scenario
The IMF’s chief economist, Pierre-Olivier Gourinchas, acknowledged in an interview that the institution was aware the situation could prove worse than the reference scenario. The WEO itself states: ‘We recognise that this scenario could prove too optimistic, considering the high degree of uncertainty over how the situation may develop.’
This is not evasion. It is the institutional logic of the WEO. The reference scenario is not a prediction. It is the baseline from which member-state policy recommendations are derived. A more pessimistic baseline would imply more aggressive policy responses — larger fiscal interventions, faster monetary easing, more extensive emergency reserve releases — which some member states would resist. The reference scenario is therefore simultaneously an economic assessment and a political negotiation.
Understanding this does not invalidate the WEO. It clarifies what the document is: not a forecast of what will happen, but a framework for policy discussion built around the most favourable plausible outcome. The adverse and severe scenarios are included precisely because the institution knows the reference case may not hold. Their inclusion is the WEO’s actual analytical contribution.
The reference scenario is not a prediction. It is a policy anchor — the most favourable plausible outcome around which member states can coordinate. The real analysis is in the scenarios they hope do not materialise.
What the severe scenario implies
If the severe scenario materialises — extended conflict, oil sustained above $110, financial market dislocation — the consequences are concentrated in specific regions and populations. Emerging market and developing economies, which are more dependent on oil imports and have less fiscal space, bear a disproportionate burden. The IMF estimates that under the severe scenario, growth in emerging markets excluding China would decline by 1.9 percentage points — nearly twice the decline projected for advanced economies.
Defence spending is rising simultaneously. The WEO includes a chapter documenting that large defence spending booms have become more frequent, especially in emerging economies. In a typical boom, defence outlays increase by approximately 2.7 percentage points of GDP over two and a half years, with roughly two-thirds financed through deficit. Public debt increases by about 7 percentage points within three years. In wartime, debt jumps by approximately 14 percentage points and social spending falls.
The IMF further documents that armed conflicts generate output losses exceeding those from financial crises or severe natural disasters, with slow and uneven recoveries that depend critically on sustained peace. Capital and productivity remain subdued even when labour returns.
The structural problem
The WEO’s scenario structure exposes a deeper institutional difficulty. The reference scenario is built on assumptions that were already obsolete at publication. The adverse and severe scenarios describe outcomes that are, by the institution’s own analysis, plausible and consequential. But the headline number — 3.1 per cent — is the one that enters the public record, shapes market expectations, and informs policy design.
This is not a failure of the economists who produce the WEO. It is a structural feature of how international institutions communicate under uncertainty. The document’s most valuable content — the scenario analysis, the defence-spending chapter, the conflict-impact research — is behind the headline. The readers who need it most are the ones who read past the first number.
The concentrated view: the IMF’s three scenarios are the honest analytical product. The choice to anchor the official forecast on the most optimistic one is the institutional product. The serious reader treats both as data.
