Energy prices ease after US-Iran deal, but trade flows to take time : IMF

The International Monetary Fund has confirmed that energy and commodity prices have fallen since the United States and Iran agreed to halt hostilities and reopen the Strait of Hormuz, marking a positive development for the global economy.

The International Monetary Fund has confirmed that energy and commodity prices have fallen since the United States and Iran agreed to halt hostilities and reopen the Strait of Hormuz, marking a positive development for the global economy. However, the Fund cautioned that Gulf trade flows will take time to return to normal as the region adjusts to the post-war reality.

IMF spokesperson Julie Kozack announced that the Fund will decide in its July 8 World Economic Outlook update whether to keep the three growth scenarios it issued in April. Those scenarios were based on possible outcomes of the US and Israel’s joint war on Iran, reflecting the profound uncertainty that had gripped global markets during the conflict.

In May, as the Strait of Hormuz remained closed and oil prices stayed above $100 a barrel, Kozack had warned that the global economy was moving away from the more stable “reference forecast” towards an “adverse scenario” of 2.5 percent growth. The closure of the strait, through which approximately 20 percent of global oil supplies pass, had sent shockwaves through energy markets and raised fears of a sustained global recession.

The signing of the Islamabad Memorandum of Understanding and the subsequent reopening of the strait have reversed some of those trends. Oil prices have fallen significantly, with petrol and diesel prices dropping by Rs74 and Rs67 per litre respectively in Pakistan alone. The decline has provided relief to import-dependent economies and helped stabilize inflation expectations.

However, Kozack’s warning about the time needed for trade flows to normalize highlights the lingering effects of the conflict. Shipping companies remain cautious about transiting the strait, and insurance costs have not yet returned to pre-war levels. Additionally, Iran’s infrastructure suffered damage during the hostilities, and it may take months to restore full export capacity.

The IMF’s July update will be closely watched by policymakers and investors. If the Fund decides to maintain its reference forecast, it would signal confidence that the global economy has weathered the crisis and is on a path to recovery. However, if the IMF downgrades its outlook, it would reflect concerns about the lingering effects of the war and the fragility of the ceasefire.

For now, the easing of energy prices is a welcome development for consumers and businesses worldwide. But as the IMF has made clear, the road to full economic normalization remains long. The coming weeks, as negotiators work to finalize a lasting peace agreement, will determine whether the current optimism is sustained or gives way to renewed uncertainty.