IMF Downgrades Outlook for Global Economy Amid Pandemic

In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)
In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)
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IMF Downgrades Outlook for Global Economy Amid Pandemic

In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)
In this March 19, 2020 file photo, a deserted construction site is pictured in Dardilly, near Lyon, central France. The virus crisis has triggered the worst global recession in nearly a century -- and the pain is not over yet even if there is no second wave of infections, an international economic report warned Wednesday. (AP Photo/Laurent Cipriani, File)

The International Monetary Fund has sharply lowered its forecast for global growth this year because it envisions far more severe economic damage from the coronavirus than it did just two months ago.

The IMF predicts that the global economy will shrink 4.9% this year, significantly worse than the 3% drop it had estimated in its previous report in April. It would be the worst annual contraction since immediately after World War II.

For the United States, the IMF predicts that the nation's gross domestic product - the value of all goods and services produced in the United States - will plummet 8% this year, even more than its April estimate of a 5.9% drop. This, too, would be the worst such annual decline since the US economy demobilized in the aftermath of World War II.

The IMF issued its bleaker forecasts Wednesday in an update to the World Economic Outlook it released in April. The update is generally in line with other recent major forecasts. Earlier this month, for example, the World Bank projected that the global economy would shrink 5.2% this year.

The IMF noted that the pandemic was disproportionately hurting low-income households, "imperiling the significant progress made in reducing extreme poverty in the world since 1990."

In recent years, the proportion of the world´s population living in extreme poverty - equivalent to less than $1.90 a day - had fallen below 10% from more than 35% in 1990. But the IMF said the COVID-19 crisis threatens to reverse this progress. It forecast that more than 90% of developing and emerging market economies will suffer declines in per-capita income growth this year.

For 2021, the IMF envisions a rebound in growth, so long as the viral pandemic doesn´t erupt in a second major wave. It expects the global economy to expand 5.4% next year, 0.4 percentage point less than it did in April.

For the United States, the IMF predicts growth of 4.5% next year, 0.2 percentage point weaker than in its April forecast. But that gain wouldn´t be enough to restore the US economy to its level before the pandemic struck. The association of economists who officially date recessions in the United States determined that the economy entered a recession in February, with tens of millions of people thrown out of work from the shutdowns that were imposed to contain the virus.

The US government has estimated that the nation´s GDP shrank at a 5% annual rate in the January-March quarter, and it is widely expected to plunge at a 30% rate or worse in the current April-June period.

In its updated forecast, the IMF downgraded growth for all major countries. For the 19 European nations that use the euro currency, it envisions a decline in growth this year of 10.7% - more than the 8% drop it predicted in April - followed by a rebound to growth of 6% in 2021.

In China, the world´s second-largest economy, growth this year is projected at 1%. India´s economy is expected to shrink 4.5% after a longer period of lockdown and a slower recovery than was envisioned in April.

In Latin America, where most countries are still struggling to contain infections, the two largest economies, Brazil and Mexico, are projected to shrink 9.1% and 10.5%, respectively.

A steep fall in oil prices has triggered deep recessions in oil-producing countries, with the Russian economy expected to contract 6.6% this year and Saudi Arabia´s 6.8%.

The IMF cautioned that downside risks to the forecast remain significant. It said the virus could surge back, forcing renewed shutdowns and possibly renewed turmoil in financial markets similar to what occurred in January through March. The IMF warned that such financial turbulence could tip vulnerable countries into debt crises that would further hamper efforts to recover.

Its updated forecast included a downside scenario that envisions a second major outbreak occurring in early 2021. Under this scenario, the global economy would contract again next year by 4.9%, it estimates.



Energy Sector Clears ‘Hormuz’ After US-Iran Deal, Risk Premium in Focus

Ships wait to transit the Strait of Hormuz on June 15. REUTERS
Ships wait to transit the Strait of Hormuz on June 15. REUTERS
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Energy Sector Clears ‘Hormuz’ After US-Iran Deal, Risk Premium in Focus

Ships wait to transit the Strait of Hormuz on June 15. REUTERS
Ships wait to transit the Strait of Hormuz on June 15. REUTERS

The energy sector and the global economy have avoided the worst-case scenario: oil at $150 a barrel.

That was the level many financial institutions and international companies had used in shaping their investment assumptions. International officials and governments also expected it and aligned with those forecasts.

For the global economy, $150 oil would have meant an energy sector slipping out of control, with damaging consequences for other industries. That did not happen. Brent crude is now trading at about $80 a barrel, roughly $70 below that feared level and above its pre-war price of $70.

With shipping through the Strait of Hormuz resuming after a preliminary peace agreement reached by the United States and Iran, expected to take effect next Friday, energy is again moving to the center of the global economic picture. For years, the sector has supported global growth, development and market stability, helping shield international markets from sudden shocks.

What comes after the agreement?

Since the preliminary US-Iran agreement was announced, oil prices have fallen by nearly $20 a barrel. That is a major cost relief for countries that import crude, and one that is likely to feed through to many other goods, given oil’s role as a basic input in finished products.

Stock markets rose in parallel, lifted by optimism over the reopening of the Strait of Hormuz and the return of shipping to normal. The prospect of commodity prices easing back toward pre-war levels could support corporate earnings and the wider global economy.

But Mamdouh Salameh, an international energy expert, said prices would not return to pre-war levels so easily.

“The current situation indicates that Iran controls 20% of global oil and gas supplies as a result of its closure of the Strait of Hormuz. Therefore, oil prices after the agreement must take into account a permanent price premium because of Iran’s control of the Strait of Hormuz,” Salameh told Asharq Al-Awsat.

Speaking from London, Salameh said that even after the strait reopens, “the volume of oil flowing through it will fall to half its pre-war level because of the damage sustained by oil production facilities in the Arabian Gulf.”

He expected repairs to some facilities to take about eight to 12 months. “For this reason, Brent crude will not return to its pre-war level of $60 to $65 a barrel, but will range between $85 and $90 for many years to come,” he said.

Spot premiums for crude oil and some refined products in Asian markets fell on Tuesday, settling at pre-war levels after the announcement of the preliminary agreement between Washington and Tehran. Still, caution over the timeline for restoring normal navigation has so far placed a floor under energy prices, preventing a sharper decline.

Supply and demand

Saudi Aramco President Amin Nasser estimated that the oil market loses about 100 million additional barrels for every week the Strait of Hormuz remains closed, after the crisis had already removed about 1 billion barrels from supply.

Nasser said in remarks in mid-May that the gap was being covered through withdrawals from strategic and commercial inventories.

About 20% of global oil supplies pass through the Strait of Hormuz. Its closure has tested the depth of strategic inventories worldwide and posed a major challenge to the global energy sector. That was clear in moves by the International Energy Agency and its members to draw from strategic reserves.

Estimates of global demand growth this year range from 700,000 to 900,000 barrels per day. That suggests demand will remain strong long after Hormuz reopens, driven by daily oil needs for power generation and normal consumption, as well as the need to rebuild inventories.

Asia is the most exposed. The US Energy Information Administration estimates that 84% of the crude oil and condensates that passed through Hormuz in 2024 went to Asian markets, led by China, India, Japan and South Korea.

Against this backdrop, Aramco, the Saudi oil giant, said its maximum production capacity remains intact and that the company can, if requested by the government and within allocated quotas, return to maximum sustained capacity in less than three weeks.

QatarEnergy, among the hardest hit, said it expects to raise natural gas production to about 50% of capacity one month after safe passage through the Strait of Hormuz is restored.

The world is now waiting for the terms of the preliminary agreement between the United States and Iran to be disclosed, so implementation can begin. Only then can a timeline be set for ships to reach “zero waiting,” followed by the return of Gulf production capacity.

Haitham El-Gendy, an international markets expert, said, “The matter depends on how quickly navigation through the Strait of Hormuz returns to pre-war levels, and how quickly supplies from the Gulf region resume. Both issues depend primarily on hostilities not resuming during the 60-day negotiation period.”

“If we assume that things will proceed well, a return to normal will require weeks, given the scale of tanker congestion around the strait and the need to remove mines,” El-Gendy told Asharq Al-Awsat. “As for Gulf supplies, this will also require varying periods depending on the extent of the damage to each country’s energy facilities.”

According to Wood Mackenzie, halted crude production fields in the region will return to 70% of their previous output within three months and about 90% within six months. For liquefied natural gas, of which Qatar produces one-fifth of global supply, a return to full production capacity will take several months and could stretch into years after damage to the Ras Laffan facility.

On crude prices, El-Gendy said that if tensions do not flare again, oil could move in the $80-a-barrel range, with room to rise, as countries replenish inventories and strategic reserves depleted in recent months and Chinese demand recovers to pre-war levels.


Syria Signs Gas Sector Contract with US Energy Giant

A screen displays the logo for ConocoPhillips on the floor of the New York Stock Exchange (NYSE) in New York City, US, April 6, 2022. REUTERS/Brendan McDermid
A screen displays the logo for ConocoPhillips on the floor of the New York Stock Exchange (NYSE) in New York City, US, April 6, 2022. REUTERS/Brendan McDermid
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Syria Signs Gas Sector Contract with US Energy Giant

A screen displays the logo for ConocoPhillips on the floor of the New York Stock Exchange (NYSE) in New York City, US, April 6, 2022. REUTERS/Brendan McDermid
A screen displays the logo for ConocoPhillips on the floor of the New York Stock Exchange (NYSE) in New York City, US, April 6, 2022. REUTERS/Brendan McDermid

Syria on Tuesday signed a contract involving US oil giant ConocoPhillips to develop the country's gas sector, state media reported, as Damascus seeks to attract international energy investment.

Damascus previously signed memoranda of understanding on energy with international companies including Chevron as well as HKN Energy, which has begun managing and operating oil fields recently handed over to the government by Syrian Kurdish authorities.

State news agency SANA reported that the state-owned Syrian Petroleum Company signed "a contract with US companies ConocoPhillips and Novaterra with the aim of developing a number of gas fields in Syria and increasing production from existing fields".

The move seeks to "contribute to supporting the energy system and strengthening gas supplies required for the electricity sector and other vital sectors," it said.

In Washington last week, Syrian Petroleum Company CEO Youssef Qablawi said it would be "the biggest contract" to be signed since the new authorities took power after the December 2024 ouster of longtime ruler Bashar al-Assad.

At the signing ceremony in Damascus, Qablawi said the move was "an important step in the process of developing the gas sector in Syria".

"Through this cooperation, we look forward to increasing production, improving operational capabilities and supporting the energy system," he added.

A Syrian delegation headed by Energy Minister Mohammad al-Bashir held talks in Washington last week on investment prospects in energy and infrastructure in Syria and possible partnerships with the US private sector.

After years of civil war that fractured the country and ravaged its industries and infrastructure, Syria is seeking to modernize its energy infrastructure, attract investment and boost development as it pushes on a path of economic recovery, particularly after the lifting of Assad-era sanctions.

Syria aims to produce one million barrels of oil per day by 2030 and is seeking to broaden international cooperation on exploration and production.

Last month, Syria signed a memorandum of understanding with ConocoPhillips, France's TotalEnergies and Qatar's QatarEnergy, on offshore oil and gas exploration.

In February, it also signed a preliminary deal with US energy giant Chevron and Qatari firm Power International for offshore energy exploration.

Damascus now controls all the country's oil and gas fields, after taking over areas previously under Kurdish control in the north and northeast this year.

The deputy governor of the northeastern Hasakah province, Ahmed al-Hilali, on Monday said HKN Energy had begun managing and operating those fields.


Oil Drops About 4% to Three-month Low as Markets Weigh US-Iran Deal

AUSTIN, TEXAS - JUNE 15: In an aerial view, oil storage tanks are seen at the Sunoco LP Fuel Supply Terminal on June 15, 2026 in Austin, Texas.  Brandon Bell/Getty Images/AFP
AUSTIN, TEXAS - JUNE 15: In an aerial view, oil storage tanks are seen at the Sunoco LP Fuel Supply Terminal on June 15, 2026 in Austin, Texas. Brandon Bell/Getty Images/AFP
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Oil Drops About 4% to Three-month Low as Markets Weigh US-Iran Deal

AUSTIN, TEXAS - JUNE 15: In an aerial view, oil storage tanks are seen at the Sunoco LP Fuel Supply Terminal on June 15, 2026 in Austin, Texas.  Brandon Bell/Getty Images/AFP
AUSTIN, TEXAS - JUNE 15: In an aerial view, oil storage tanks are seen at the Sunoco LP Fuel Supply Terminal on June 15, 2026 in Austin, Texas. Brandon Bell/Getty Images/AFP

Oil prices fell about 4% on Tuesday to fresh three-month lows as markets weighed prospects for a resumption of supplies through the Strait of Hormuz alongside weaker physical demand and scant details on a preliminary deal to end the Iran war.

Brent crude futures were down $3.20, or 3.85%, at $79.97 a barrel at 1253 GMT. They earlier touched $79.61, the lowest since March 3, and the first time they have fallen below $80 since that day.

US West Texas Intermediate was down $3.52, or 4.36%, at $77.23 a barrel. WTI's intra-day nadir of $76.88 was the lowest since March 10.

Before the war started on February 28, Brent and WTI futures were trading around $65-70 per barrel.

Oil prices sank nearly 5% on Monday after US President Donald Trump announced an interim deal to end the US-Israeli war with Iran, though full details have not been released.

Iranian Foreign Minister Abbas Araqchi said on Tuesday that Iran and the US would start a new round of talks in Switzerland on Friday to reach a final agreement.

"Near-term downside risks remain as the market prices a faster reopening of the Strait and a return of stranded barrels," Saxo Bank analyst Ole Hansen said.

However, depleted inventories, seasonal demand, strategic stock rebuilding and lingering geopolitical uncertainty suggest the path back to pre-war prices may be far less straightforward than current market optimism implies, Hansen said.