US Treasury secretary says short-term pain worth long-term security

US Treasury Secretary Asserts Short-Term Sacrifices for Long-Term Safety

US Treasury Secretary Scott Bessent has expressed that temporary economic challenges are justifiable to safeguard against the possibility of Iranian nuclear threats targeting Western cities. Amid warnings from the International Monetary Fund (IMF) that the US-Israel conflict with Iran could push the global economy toward recession, Bessent emphasized that the long-term advantages of security would outweigh immediate costs.

“I wonder what the impact on global GDP would be if a nuclear strike hit London,” Bessent remarked. “I’m more focused on the long-term security benefits than the short-term economic forecast.”

Iran maintains its nuclear program is purely peaceful. However, Bessent noted that the recent use of mid-range intercontinental ballistic missiles against the US base at Diego Garcia confirmed Iran’s capability to strike London. “We now have clear evidence that Iran possesses these weapons and seeks a nuclear program,” he stated, suggesting that US and Israeli strikes had mitigated the risk of such attacks.

A UK government spokesperson clarified that there was no official assessment indicating Iran aimed to target Europe with missiles. “We have the necessary military preparedness to protect Britain from any attack, whether it originates on our territory or from abroad,” they added, highlighting readiness for potential threats.

IMF Forecasts: Economic Impact of the Conflict

In its World Economic Outlook, the IMF outlined a worst-case scenario where soaring oil, gas, and food prices persist for two years, potentially reducing global growth to under 2% in 2026. This would mark a near miss for a global recession, which has occurred only four times since 1980, including during the recent pandemic.

The IMF also warned that prolonged conflict could drive inflation to 6% next year, prompting central banks to raise interest rates to curb rising prices. Pierre-Olivier Gourinchas, the IMF’s chief economist, noted that even a short-term war would have effects comparable to the 1970s oil crisis, when Arab producers imposed embargoes on nations supporting Israel.

Despite this, Gourinchas acknowledged the world’s reduced reliance on oil and fossil fuels, which would lessen the consumer impact compared to past crises. While oil prices surged near $120 during the Iran war, they have since retreated to around $95 per barrel.

Recession Risks and Regional Economic Outlooks

IMF projections indicate that if the conflict persists for over two years, recession risks would escalate. However, if the war resolves within weeks and Middle Eastern energy production stabilizes by mid-2026, the organization forecasts global growth to ease to 3.1%—a slight drop from earlier estimates of 3.3%.

Among advanced economies, the UK is anticipated to suffer the most from the energy shock. The IMF revised its growth forecast for the UK this year to 0.8%, down from 1.3%. Yet, it predicts a rebound to 1.3% in 2027 if the conflict ends soon. Gulf oil-exporting nations, meanwhile, face a likely slowdown or contraction in growth this year, while Iran’s economy is projected to contract by 6.1% before a recovery of 3.2% in 2027.