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Ulviyya Poladova

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The International Monetary Fund's latest World Economic Outlook delivers a sobering message that policymakers and investors can no longer afford to ignore. The war in the Middle East highlights the importance of establishing safeguards to reduce the impact of excessive inflation caused by global crises.

The IMF's analysis reveals a complex transmission mechanism through which geopolitical conflict propagates economic damage. The report finalized before President Donald Trump's declaration that the US-Iran ceasefire was "over."

According to The Financial Times, the inflation trajectory warrants particular scrutiny. Global price growth is now projected to accelerate from 4.1% in 2025 to 4.7% in 2026, representing a substantial revision from the 4.4% forecast just three months prior.

The energy market dynamics underlying these forecasts deserve careful examination. The IMF explicitly warned that oil inventories, which had buffered earlier price impacts, are approaching multiyear lows. This inventory depletion creates a precarious situation in which any sustained supply disruption or hoarding could push markets into "stress levels." The 5% jump in Brent crude to approximately $78 per barrel following Trump's ceasefire announcement validates this concern and suggests further upside risk.

The differentiated impact across oil exporters reveals important structural vulnerabilities. Iraq, Kuwait, and Qatar face projected contractions in 2026, with recovery dependent on the resumption of normal energy production and transport operations. Saudi Arabia's more favorable outlook (1.7% growth in 2026 and 5.5% in 2027) stems specifically from its diversified export routes, a strategic advantage that other regional producers lack. This divergence underscores how infrastructure decisions made years ago are now determining economic resilience.

The inflationary pressure is forcing a recalibration of monetary policy expectations across major economies. The IMF now anticipates the Federal Reserve will raise rates from the current 3.5-3.75% range in 2026 before cutting in 2027. For the Eurozone, the forecast is more stark, because inflation will remain above the European Central Bank's 2% target through 2028, potentially necessitating additional rate increases beyond June's quarter-point hike to 2.25%.

The contrast with Central Asia and the Caucasus is instructive. These regions maintain positive momentum despite higher energy and food prices, supported by commodity exports, expanding trade corridors, and infrastructure investment. Their resilience demonstrates that geographic position and economic structure, not merely policy choices, significantly determine outcomes in periods of global stress.

Speaking to AzerNEWS, economist Natiq Mammadov said the IMF's outlook for higher global inflation in 2026 reflects current economic risks, although considerable geopolitical uncertainty remains.

Mammadov noted that ongoing geopolitical tensions, particularly in the Middle East, continue to pose a serious risk to global price stability.

"Ongoing geopolitical tensions, particularly in the Middle East, pose a serious risk of higher inflation in 2026, especially if they lead to disruptions in global energy supplies," he said.

The economist stressed that several factors support the IMF's outlook. He pointed out that global oil inventories remain relatively low, making energy markets more vulnerable to supply disruptions. He also noted that Brent crude prices have risen to around $78 per barrel, indicating that markets are already responding to geopolitical risks.

"Higher oil prices increase transportation and production costs, and businesses often pass these additional expenses on to consumers, contributing to higher inflation. If inflationary pressures persist, central banks may need to keep interest rates elevated for a longer period than previously expected," Mammadov explained.

At the same time, he cautioned that considerable uncertainty remains.

"The actual inflation rate will depend largely on how geopolitical events unfold. If tensions ease and energy supplies remain stable, inflation could be lower than the IMF currently expects. On the other hand, any escalation of conflict or significant disruption to oil exports could push inflation above current forecasts," Mammadov said.

Overall, he described the IMF's projection as well-founded because it reflects the key risks facing the global economy, while emphasizing that its accuracy will ultimately depend on future geopolitical and energy market developments.

Speaking about the stronger performance of Central Asian and South Caucasus economies, Mammadov said the region has demonstrated resilience thanks to several structural advantages.

"Central Asian and Caucasus economies have shown strong resilience because they possess several structural advantages that have helped them cope with global economic challenges," he emphasized.

According to him, strong commodity exports, particularly in energy and natural resources, have provided stable export revenues and supported economic growth even during periods of market volatility.

An expert also highlighted the expansion of regional and international trade corridors as another important factor.

He added that continuous investment in transport, logistics, and infrastructure has improved regional connectivity and strengthened long-term economic development.

In addition, Mammadov stressed that relatively stable macroeconomic policies have helped countries in the region adapt to changing global conditions.

"The combination of natural resources, infrastructure development, strategic location, and growing trade links has enabled them to withstand higher energy and food prices better than many other economies," he said.

Mammadov stressed that the continued development of transport corridors and infrastructure could become one of the region's greatest long-term economic advantages.

"Improved transport networks, including railways, highways, ports, and logistics centers, make the movement of goods faster, more efficient, and less costly. This encourages trade, strengthens supply chains, and makes the region more attractive to foreign investors," he explained.

He emphasized that the strategic location of Central Asia and the South Caucasus between Europe and Asia further enhances their importance as international transit hubs.

According to him, efficient trade corridors can boost exports and imports, create new jobs, encourage industrial diversification, and reduce dependence on a limited number of economic sectors. He added that they can also improve economic resilience by providing alternative trade routes during periods of global disruption.

Turning to Azerbaijan's energy sector, Mammadov said the country's growing natural gas exports to Europe have the potential to significantly strengthen its long-term economic security.

"As Europe continues to diversify its energy sources, Azerbaijan has become an increasingly important and reliable energy partner," he noted.

The economist explained that Azerbaijan's strategic location and well-developed energy infrastructure allow it to supply natural gas to European markets while contributing to regional energy security and economic cooperation.

He pointed out that these exports generate substantial foreign exchange earnings, increase government revenues, attract international investment, and support the development of key sectors, including energy, transportation, and logistics.

"They also enhance the country's geopolitical significance by strengthening long-term partnerships with European countries and reinforcing Azerbaijan's role as a bridge between Europe and Asia," Mammadov said.

He further noted that expanding energy cooperation creates opportunities beyond the gas sector by encouraging infrastructure development, promoting trade, and supporting broader economic integration with European markets.

While emphasizing that economic diversification remains essential for long-term resilience, he stressed that Azerbaijan's natural gas resources provide a solid foundation for future growth.

"By using energy revenues to modernize the economy and invest in new industries, Azerbaijan can further strengthen its competitiveness and ensure lasting economic security. Azerbaijan's role as a reliable supplier of natural gas is not only vital for its own economic development but also increasingly important for Europe's long-term energy security and stability," Mammadov added.