By Nitya Chakraborty
President Donald Trump as usual has been talking in conflicting voices on his immediate stand on Iran war. The U.S. President ordered naval blockade of Iranian ports after the failure of the Islamabad peace talks on Sunday but on Tuesday, he indicated that another round of talks would be held in the Pakistan capital this week end. In fact even though the first round on April 11 ended in stalemate, enough ground was covered. The US and Iran officials continued back channel negotiations for organizing the second round as early as possible.
In the White House, there is a gloom among the Trump advisers as the U.S. President is losing his bargaining position vis a vis Iran and the escalation by the U.S. side will intensify the process further. Right now, there is no friend in Europe among the ruling heads of the governments. Hungarian Prime Minister Victor Oban has been defeated in the national elections. He was only real supporter of Trump among EU nations. Then the Italian PM Giorgia Meloni, a confident of Trump, has fallen out with him on Iran war. Trump had to strongly lambast her on Tuesday.
Trump is a businessman and he takes the future of the US corporates seriously. His corporate friends earlier advised him to settle with Iran through any other means excepting going to war. They said that if the war continued, it would damage global economy in a big way leading to another big recession. Now that is confirmed by the International Monetary Fund in its half yearly update released on Tuesday. The IMF report warned that any further escalation in the Iran war could trigger a global recession that would have severe impact on all G-7 countries.
Against an increasingly volatile backdrop, the Washington-based fund said the economic damage from the Middle East conflict was steadily rising as it cut its growth forecasts for 2026 based on the impact of the war so far. The impact on the UK economy will be most severe among the G 7 countries, but US will suffer equally. Trump can’t risk a recession in US economy just six months before the midterm elections in November this year. The Democrats are on his neck. The entire Republican Party will blame the President if the Democrats win in the midterm.
While warning that countries worldwide would face slower growth and higher inflation, the IMF said net energy importers and developing nations would face the biggest hit. IMF report says that even a short lived conflict would dent growth and stoke inflation. The IMF chief economist said that the continuation of the war meant that the world was moving closer to an adverse scenario in which oil prices would remain close to US$ 100 a barrel this year before falling back to US $ 75 in 2027.
Oil prices had jumped back above $100 (£74) a barrel on Monday amid choppy trading in global markets after crunch weekend talks between the US and Iran ended in stalemate and as a US blockade of the Strait of Hormuz began. On Tuesday, Brent crude was down 4% at about $95 a barrel on hopes of further peace talks.
The IMF said that under a “severe scenario – with a lengthier, intensive war keeping the oil price above $110 into 2027 – global growth would collapse to about 2% this year, a threshold widely seen as equivalent to a worldwide recession. The IMF estimates global growth has only fallen below this rate four times since 1980, most recently amid the Covid pandemic in 2020 and after the 2008 financial crisis.
In a blow to households, inflation would also exceed 6% – forcing central banks worldwide to drive up interest rates to prevent the shock from allowing fast-rising consumer prices becoming entrenched.
With the threat of an escalating war in the Middle East, the IMF said the best way to limit the economic damage was to bring an end to the conflict. Beyond that, it called on central banks to remain vigilant and urged governments considering using emergency financial support to focus on temporary and targeted measures because most countries had unsustainably high debt levels
While the US economy will feel the heat with further rise in gasoline prices and increase in inflationary pressures, the U.S. is witnessing with dismay, the intensive diplomatic outreach of the Iranian leadership with Europe and China. While Trump’s relations with Europe have reached the lowest point, Tehran is cosying with EU getting results. For the White House, this is a setback in its present diplomatic offensive.
Similarly, the review by Trump advisers show that while the US is incurring heavy costs in destroying Iranian state, China and Russia are getting dividends from the US war despite all the warnings and threat of sanctions by Trump. In fact, Iran has suggested that China should be a member of the monitoring countries of Hormuz Strait. Russia is also keeping close ties with Iran and assisting them through high tech advice.
In this scenario, the best option for the US is to wriggle out of Iran war by extracting maximum concessions on Iran’s right on enrichment of uranium in the coming peace talks. Israel Prime Minister Netanyahu is opposed to the peace deal but this Trump can ignore him as he has to e concerned more about his political fate in his own country rather than pampering Israeli PM again. Trump can claim that the US objectives have been achieved in Iran and the US has earned victory. But if at the coming round, the talks again fail, the West Asia situation may go to unpredictable direction. (IPA Service)
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