Reserves that blunted initial shock limited against extended Strait closure

The International Monetary Fund warned Wednesday that the global economy has less capacity to absorb a prolonged disruption to oil supplies passing through the Strait of Hormuz, as U.S.-Iran hostilities resumed after the collapse of a June ceasefire. The fund said the strategic buffers that blunted the initial impact — spare production capacity, compressed demand, and drawdowns from strategic reserves held in China and elsewhere — have been substantially depleted.

“The impact of the conflict on the global economy has been smaller than feared when it began in late February,” the fund said in a blog post, noting that oil prices did not rise as sharply as many economists had anticipated. “What cushioned the initial blow this time is that energy markets had room to maneuver and absorb it.”

The IMF last week forecast global growth of 3% for 2026, down from 3.1% projected in April and 3.5% in 2025, but warned that growth could weaken further if Middle East hostilities escalate. U.S. strikes that restarted last week in response to Iranian attacks on shipping continued Tuesday, while a U.S. blockade of Iranian ports and shipping resumed Tuesday afternoon, the fund noted.

The IMF calculated that between March and May the strait’s closure removed more than 1.1 billion barrels of crude from the market, roughly equivalent to 10 days of global consumption. The fund said that exceeded the supply reductions during the 1973 oil shock, the Iran-Iraq War in the 1980s, and the Gulf War in the early 1990s.

Despite the scale of the disruption, the IMF said oil prices did not spike as those historical precedents would have predicted, limiting the damage to the global economy. The fund attributed the muted price response to a combination of factors: the initial price rise spurred a decline in demand of 5.8 million barrels a day, while increased production from the U.S., Venezuela, Guyana, and Russia added 1.7 million barrels a day. That left a shortfall of roughly 4 million barrels a day that was met from strategic reserves, primarily in China.

“As tensions flare again in the Strait of Hormuz, that room is now smaller and shrinking further as spare capacity has been deployed, demand has compressed, and inventories have been drawn down,” the IMF said.

The fund noted that spare capacity — additional production that could be brought online quickly — was deployed as part of the initial buffer. The blog post added that moving to alternative energy sources, including renewables, would help reduce the vulnerability of the global economy to future disruptions at key oil chokepoints.

“A quick supply recovery is essential to avoid further damage to the global economy,” the fund said, adding that “an enduring U.S.-Iran agreement would create an opening to restore supply.”

In its analysis, the IMF said that “unless inventories are replenished, the world will start from a weaker position when the next shock comes.”