IMF chief Kristalina Georgieva on Iran, energy, tariffs

[0:00] On Friday, we spoke with the Managing Director of the IMF, [0:03] Kristalina Georgieva, here in Washington. [0:06] We began by asking her about the war's impact [0:09] on the global economy. [0:10] How do you calculate the economic shock [0:13] from this Mideast war? [0:15] We look at the size of the impact [0:20] and the duration of impact. [0:23] And what I can tell you is that this shock is large, [0:29] 13% of oil, 20% of gas that would have flown in the world [0:35] is now stuck for five weeks and counting. [0:40] It is global. [0:42] Everybody uses energy. [0:44] Everybody feels the pinch of prices going up. [0:49] And it is asymmetric. [0:51] It affects different countries differently. [0:54] If you are in the vicinities of the conflict, [0:58] it's a big hit on you. [0:59] If you are an oil importer, it is a big hit on you. [1:04] If you have no reserves to protect yourself, [1:08] you are in a very tough situation. [1:10] It appears like Asia bore a lot of the economic impact here. [1:15] South Korea, they've got a big computer chip industry. [1:19] They have called on their citizens to conserve energy. [1:21] India, they're rationing energy. [1:24] The Philippines had a national energy emergency. [1:27] The Australian gas stations are running out of fuel. [1:31] It seems like there's a large part of the planet that's really in pain. [1:35] Oh, yes, people are hurting. [1:37] They're hurting because of sheer lack of quantities. [1:45] If you are in the Philippines, you're queuing the same way people were queuing here in the 70s to fill your tank. [1:55] They are hurting because they may be in need of helium for semiconductors or for MRIs. [2:04] And that comes out of Qatar, out of the Middle East. [2:06] That comes out of Qatar, and now it is cut to size. [2:14] They may be hurting because of fertilizers. [2:17] Now is the planting season. [2:20] If you are not getting fertilizers or not getting them at a reasonable price, [2:25] we may see a spike in food prices coming. [2:30] They're hurting because of remittances. [2:32] You think how many people live in the Gulf, work in the Gulf, send money home to places like India and Bangladesh, [2:40] and this money is not coming. [2:42] They're hurting because of transportation. [2:45] I'll tell you, my heart goes for Sri Lanka, a country that is coming out of a big shock. [2:53] They were now affected because a third of flights to Sri Lanka go through the Gulf. [3:03] Now tourism is going to be hammered. [3:06] So for many, many reasons, countries are affected. [3:09] And when you look at the size of the impact, it depends on how much your reliance on imports is, [3:19] but it also depends on what is your fiscal position. [3:22] Do you have capacity to absorb the shocks? [3:25] Right. [3:26] Guess who has least capacity? [3:28] Poor, vulnerable countries. [3:31] Whether they are in Asia or in sub-Saharan Africa, they're being hammered dramatically. [3:38] And when we discuss our response, we will zero in on these highly vulnerable countries. [3:45] Here, Americans, they're still spending, they're still driving, but they have seen inflation go up. [3:51] Prices at the gas pump. [3:53] Right. [3:53] I mean, the U.S. is in the category of countries that are somewhat less impacted because U.S. is energy exporter. [4:00] But as I said, everybody feels the pinch of prices going up. [4:06] Why? [4:06] This is a negative supply shocks. [4:10] You have less energy, but the demand is still the same. [4:15] What happens? [4:15] Prices go up. [4:17] And here in the United States, people have not quite yet seen inflation going down to target. [4:25] We were projecting this to happen by early 27. [4:30] Now that may be somewhat delayed. [4:33] And what does it mean? [4:34] It means that people experience a tax on their income. [4:43] Who is most affected? [4:45] Of course, low-income part of the population. [4:48] Well, at one point, oil prices surged nearly 50% because of this war in Iran. [4:54] And you called it the largest disruption to global energy markets in modern history. [5:00] As increases, as you said, to fertilizer, to other prices that are going to push up food. [5:05] Do you see this impact stretching through 2026, even if we get a ceasefire that sticks? [5:13] So the impact is baked in because already the tankers that should have arrived in Asia have not arrived, right? [5:22] So we already have that impact. [5:24] But then on top of it, we have the infrastructure impact. [5:29] 72 energy facilities have been hit, one-third of them severe damage. [5:38] You take the gas field in Qatar, it would take three to five years to reach its full capacity. [5:48] That has significance. [5:50] And then we have other infrastructure impacts like refineries. [5:56] If they don't receive oil on a regular schedule, they have to shut down. [6:03] When they shut down to restart, that is with delay. [6:07] So yes, we are going to see some drag of this crisis over the year. [6:12] But if we have peace, of course conditions are likely to improve faster. [6:19] Above all, because confidence is going to benefit from the knowledge that there is a resolution of the fighting. [6:29] Before, something that is very important to recognize, the world economy has been incredibly resilient. [6:36] We have been hit by one shock and another and another. [6:39] We were actually projecting a small upgrade for growth in 2026, had it not been for this war. [6:53] Now we are going to have a downgrade and the size of this downgrade will depend on these two things. [7:00] Duration and speed with which everything can come back to the same level of production that we had before. [7:09] Do you think that global economists really overestimated the negative impact of the Trump tariffs? [7:17] Ah, very good question. [7:19] So the fund, when the tariffs came, was among the very few institutions that were not projecting recession. [7:27] We did project some slowdown in growth. [7:29] We did see some slowdown in growth. [7:31] Should it be somewhat disruptive? [7:33] We thought it would be somewhat disruptive. [7:36] It was somewhat disruptive. [7:37] But then what happened was an adjustment. [7:41] Adjustment in the United States with agreements that have reduced the pressure that tariffs would put here and on the rest of the world. [7:51] And we saw the rest of the world saying, OK, let's see how we can trade more with each other. [7:58] Massive increase in trade agreements, more attention to regional trade. [8:04] If you look at the place like... [8:06] You're saying turning away from the U.S. [8:08] The U.S. is saying we want to have an economy that is mostly based on investing at home, having manufacturing at home. [8:17] That's a choice that the country is making. [8:20] Other countries are looking into their economic future. [8:26] Small, open economies, they have no choice. [8:29] They have to find ways to trade with each other because otherwise it would be very costly for their people. [8:34] So the developments are relatively calming in a sense that we see trade like water. [8:46] You put an obstacle, it goes around it. [8:50] Our full conversation can be seen on our YouTube channel, website and our podcast.