Global top policymakers and financial leaders are sounding a unified alarm: markets are drastically underestimating the economic damage inflicted by the Iran conflict, and the full shockwave may only just be beginning.

At the joint International Monetary Fund (IMF) and World Bank Spring Meetings held this week in Washington, a stark consensus has emerged—one sharply at odds with prevailing market optimism. Even if the conflict ends swiftly, its economic repercussions will be far deeper and longer-lasting than anticipated.

Pierre-Olivier Gourinchas, the IMF’s Chief Economist, warned that as energy disruptions persist, the Fund’s previously outlined adverse scenario—in which global growth plummets to 2.5%—is becoming “increasingly likely.”

Meanwhile, the U.S. stock market rallied to an all-time high for the S&P 500 Index on the very day the IMF downgraded its global growth projections—a contradiction that baffled many attendees. When asked directly whether markets should exercise greater caution, IMF Managing Director Kristalina Georgieva stated unequivocally: “I think they should.”

The Tip of the Iceberg: The Full Scale of the Energy Shock Remains Unseen

Ali bin Ahmed Al Kuwari, Qatar’s Minister of Finance, delivered one of the bluntest warnings at the conference. “What we see now is just the tip of the iceberg,” he said, painting a scenario where energy price shocks evolve into physical shortages within one to two months—to the point where some governments would “not have enough energy to light their countries.”

Al Kuwari further cautioned that a food crisis, triggered by fertilizer shortages, would follow. He reminded delegates that Qatar supplies nearly one-third of the world’s helium, a critical input for semiconductor manufacturing. “The massive economic shock from this war is not far off,” he stated.

Fatih Birol, Executive Director of the International Energy Agency (IEA), characterized the disruption as the largest energy crisis in human history. He noted that while the Strait of Hormuz has been effectively closed for six weeks, the last cargoes that left the Gulf before the conflict are only now arriving at their destinations. “March was an extremely tough month for the world; April will likely be worse,” he told reporters on the sidelines of the meetings.

Structural Damage: More Than a Temporary Shock

Policymakers and economists in attendance universally emphasized that the conflict is inflicting not merely a cyclical shock, but deep-seated structural change—characterized by higher costs, longer trade routes, and heightened geopolitical uncertainty, all of which will lower the globe’s potential growth rate.

Ajay Banga, President of the World Bank, warned against dismissing the situation as “just another month of pain.” “Even if fighting stops and energy facilities are no longer targeted, the supply system will take time to repair,” he said.

Christine Lagarde, President of the European Central Bank (ECB), issued a similar warning regarding Europe’s growth outlook. Tom Orlik, Chief Economist for Bloomberg Economics, pointed out that markets are betting on a U.S. de-escalation from the Iran conflict—a wager dependent on resolving multiple hurdles: control of the Strait of Hormuz, Iran’s nuclear program, and the conflict between Israel and Hezbollah in Lebanon.

Market Euphoria: FOMO Sentiment Trumps Risk Warnings

Against this backdrop of relentless pessimism, the resilience of U.S. equities has left many attendees perplexed. The S&P 500 closed at a record high the day the IMF cut its forecast and remained elevated the following session.

Alexis Crow, Chief Economist at PwC U.S., stated bluntly that “the market is underestimating the severity of the situation,” as investors have yet to fully grasp the profound disruption to global supply chains.

Matt Maley, Chief Market Strategist at Miller Tabak + Co, attributed the disconnect to FOMO (Fear Of Missing Out)—driven by signs of de-escalation in the Middle East, optimism over artificial intelligence (AI), and strong U.S. corporate earnings, which are pushing skeptical investors to abandon caution.

Supporting risk appetite is a market logic dubbed “TACO” (Trump Always Caves Out), where participants doubt the Trump administration will maintain a hardline stance if markets come under severe pressure.

While acknowledging the U.S. market’s relative resilience—bolstered by its status as a net oil exporter, which acts as a natural buffer against energy shocks—Georgieva stressed: “This is not the story for the rest of the world. For the rest of the world, there is already a lot of pain.”

Cascading Risks: The Fragile Global System Under Test

According to a source familiar with internal discussions, profound concern over the crisis’s severity permeates the IMF’s corridors. The paramount fear is a contagion effect from the energy shock spreading to global financial markets. Policymakers face the delicate challenge of communicating the gravity of the risks without triggering panic.

Rebecca Patterson, a former senior figure at JPMorgan and Bridgewater Associates, now a senior fellow at the Council on Foreign Relations, argued that a key factor many investors overlook is the “rolling contagion” dynamic—strikingly similar to the COVID-19 pandemic. “Asia felt the energy supply disruptions first; Europe is feeling them now; the U.S. is next, as the last ships from the Gulf are about to arrive,” she explained.

Pierre Cailleteau, Global Head of Sovereign Advisory at Lazard, offered a broader caution: Following successive shocks from trade wars, the pandemic, and the war in Ukraine, government debt levels have surged, drastically eroding fiscal space to respond to new crises. “No one knows how close we are to a tipping point, but economic, financial, and social resilience are not infinite,” he warned.