The International Monetary Fund said Tuesday that the Iran war has halted the world economy’s momentum this year and that the damage is likely to show up in weaker global growth and higher inflation in 2026.

In its World Economic Outlook update, the IMF downgraded its forecast for global growth to 3.1% for 2026 from 3.3% forecast in January. The IMF said that rate would represent a slowdown from 3.4% growth in 2025 and warned that the conflict has driven up energy costs worldwide.

The fund tied the revision to U.S. and Israeli strikes on Iran, and to Tehran closing the Strait of Hormuz, along with retaliatory attacks on oil refineries and other energy infrastructure in neighboring countries. The IMF said the resulting jump in oil and gas prices has pushed inflation expectations higher around the world.

IMF economists also pointed to how the world economy had held up before the war, even as President Donald Trump’s protectionist policies increased import taxes around the United States. The IMF said the damage from those tariffs was less than feared in part because Trump’s tariffs last year ended up being lower than what he had originally announced. It also said a technology-driven boom—marked by investment in data centers and artificial intelligence—and rising productivity helped strengthen growth before the war.

Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post that accompanied the update that “War in the Middle East has halted this momentum.” The IMF’s scenario work, he said, assumes the conflict remains short-lived and that energy prices rise by “a moderate 19%” this year.

The IMF raised its expectation for global inflation to 4.4% in 2026 from 4.1% in 2025. In January, the IMF had forecast 3.8% inflation for this year, and it said the higher energy costs are the reason inflation would be stronger now.

The IMF offered a sharper warning about what could happen if energy shocks persist. Gourinchas said that even after reports of a temporary ceasefire, “some damage is already done, and the downside risks remain elevated,” and he described a “severe scenario” in which spillovers into next year force central banks to raise interest rates. In that case, the IMF said global growth could drop to 2% in 2026 and 2027.

Looking at country and region breakdowns, the IMF slightly reduced its forecast for U.S. growth in 2026 to 2.3%. For the euro area, the fund projected 1.1% growth this year for the 21 countries sharing the euro, down from 1.4% in 2025, and it cited the impact of soaring natural gas prices.

The IMF said the “hardest hit” countries may be deeply indebted poorer economies that import energy and lack room for governments to cushion shocks through higher spending and tax relief. It sharply lowered its outlook for Sub-Saharan Africa to 4.3% growth in 2026 from 4.6% forecast in January.

The IMF also said Russia could emerge as an energy-price winner. It upgraded its forecast for the Russian economy—still modest—to 1.1%, citing how it has been hit by sanctions following Russia’s invasion of Ukraine in 2022 but stands to benefit from higher energy prices.

Ukraine’s central bank governor, Andriy Pyshnyy, described the inflation pressure from higher oil prices in a Monday interview with reporters. He said, through a translator, that annual inflation in March hit 7.9% in Ukraine, above the forecast of 7% in large part due to higher fuel costs, and he estimated fuel prices could add 1.5 percentage points to annual inflation, pushing it 2.8 percentage points higher. He also pointed to possible higher fertilizer and production costs as Ukraine seeks stable prices amid its war with Russia, which he said attacks Ukraine by air “on average every 3 to 4 minutes,” and he said, “We are trying to walk on a razor blade,” describing the mission as complicated by external factors.

The IMF said it is a 191-nation lender focused on promoting economic growth and financial stability and reducing global poverty.