High oil prices may persist into 2027, warns IMF

Washington: High energy prices could persist into 2027 even if the war in the Gulf ends soon, the International Monetary Fund (IMF) warned Wednesday, saying oil remains around $100 a barrel while constraints on refining and natural gas supplies are adding to inflation and weighing on global growth.

IMF Managing Director Kristalina Georgieva said the energy shock had so far been contained by greater efficiency, diversified fuel supplies, contingency planning, reserve releases and adjustments in supply and demand.

But significant risks remain. “Nonetheless, despite a shaky recovery of flows out of the Gulf, oil prices remain around $100 per barrel reflecting risks, high transport costs, and other factors,” Georgieva said in Singapore ahead of next week's IMF-World Bank Annual Meetings in Thailand.

The strain extends beyond crude oil.

Georgieva said a structural global shortage of refining capacity had pushed the crack spread — the difference between crude oil prices and the value of refined petroleum products — to about another $100 a barrel.

The result, she said, was record retail prices for diesel and other refined products.

Natural gas supplies from the Gulf also remain severely impaired because LNG transportation options are limited as long as shipping through the Strait of Hormuz remains threatened.

“This has uneven impacts across the world, with Asia and Europe particularly hard-hit,” Georgieva said.

The warning has particular significance for a global economy already facing inflationary pressure and weak growth. Higher energy costs feed through to fertilisers, food and key industrial inputs, while El Niño is putting additional pressure on food security, according to Georgieva. That combination pushes inflation higher while depressing economic growth.

Further pressure could emerge in the coming months as colder weather increases energy demand across the Northern Hemisphere and countries replenish their reserves.

“And, to quote from Game of Thrones, winter is coming,” Georgieva said. “Price pressures may build further as demand rises with the approach of the Northern hemisphere cold season and as countries replenish reserves.”

An end to the conflict would not necessarily bring an immediate return to lower energy prices.

“Even if the war in the Gulf were to end soon, the problem of high energy prices would likely persist for some time,” Georgieva said. Brent futures currently point to high oil prices through 2027, she added. The consequences extend into financial markets and monetary policy. Higher energy prices put upward pressure on inflation, interest rates and benchmark government bond yields. US, German and Japanese 10-year sovereign yields have risen significantly this year and are at their highest levels since 2007, 2009 and 1996, respectively, Georgieva said.

The energy shock is one of three major forces the IMF says are shaping the world economy. The others are the rapid expansion of artificial intelligence and record levels of public debt.

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