IMF Warns: Global Oil Reserves Depleted Amid Rising Economic Risks
Pierre-Olivier Gourinchas, Chief Economist at the International Monetary Fund (IMF), stated that withdrawals from strategic oil reserves helped prevent sharper price increases for crude oil amid the conflict in the Middle East. However, Gourinchas warned that the global economy faces significant challenges and downside risks if the fragile ceasefire between the United States and Iran does not hold. In an interview conducted before his departure from the Fund to return to academia at the University of California, Berkeley, Gourinchas clarified that these oil reserves have now been largely depleted. This implies that countries will have significantly less room to maneuver in responding to future crises, especially if conflicts reignite. Gourinchas did not disclose details of the new forecasts the IMF is scheduled to release on July 8. However, he had repeatedly cautioned that escalating geopolitical tensions could deepen divisions within the global economy. Nevertheless, he hinted at the possibility of the Fund returning to providing baseline economic forecasts, rather than the three scenarios it had presented last April. This marks the second time during Gourinchas's tenure that the Fund has opted to forgo baseline forecasts. The first instance was in April 2025, following the disruption caused by former US President Donald Trump in global trade by imposing tariffs on imports from most countries worldwide. Earlier, IMF spokesperson Julie Kozack left open the question of whether the Fund would continue to present three growth scenarios or revert to its traditional approach of providing baseline forecasts. Last month, amid the ongoing closure of the Strait of Hormuz and global benchmark crude prices rising above $100 per barrel, Kozack indicated that the global economy is shifting from the more optimistic "baseline projections," which assumed a rapid end to the conflict and 3.1% growth in 2026, towards a "more pessimistic scenario" predicting 2.5% growth. Gourinchas stated that in 2025 and 2026, there was insufficient historical precedent to establish reliable baseline forecasts. This requires economists to "be humble" and refrain from making baseline projections, resorting instead to outlining a range of expected outcomes within specific scenarios, emphasizing that such cases should remain rare. He added, "We do not wish to repeat this approach often," yet acknowledged that levels of global uncertainty and risk remain high. He noted that rapid withdrawals from strategic reserves, coupled with production adjustments by refiners, played a crucial role in avoiding excessive spikes in oil prices. Only 3% of global oil was withdrawn from the market, compared to initial expectations ranging between 10% and 15%. However, he warned that risks are continuously increasing, and countries' oil reserves will diminish, limiting their capacity to mitigate the impact of any future supply disruptions, particularly if the ceasefire collapses and hostilities resume. In this context, former US President Trump had on Friday held Iran responsible for an attack on a ship off the coast of Oman, considering it a breach of the ceasefire. This highlights the fragility of the preliminary agreement to end the conflict with Iran. **Shifts in Trade Relations and Agreements Without US Participation** On another front, Gourinchas pointed out that global trade flows and relations are undergoing a noticeable transformation following Trump's tariffs. He noted that the European Union had concluded trade agreements with Latin American countries and India, agreements that came after decades of negotiations. He commented, "Suddenly, and in less than a year, these two agreements were signed. This is not mere coincidence, but rather underscores the deepening of trade relations with other countries," emphasizing that a number of these new trade agreements do not include the United States. In the same vein, Gourinchas noted that the effectiveness of tariffs and other economic sanctions is generally limited, without directly referring to Trump's increasing reliance on tariffs to address a wide range of political disputes. Gourinchas stated: "There is a view that having these types of choke points or decisive control is critical, but I believe what we are witnessing is how quickly the global economy tries to find ways to circumvent them." He further explained: "Indeed, you may have short-term leverage, but then there is a reaction from the other actors. They are not passive; they work to find ways either to circumvent, accelerate their innovations, or develop new trade relations with other partners, and ultimately these tools become ineffective. In the medium to long term, these methods rarely yield the desired results."
