Global finance leaders will meet in Thailand this week as the widening Middle East war, a historic energy supply shock and higher interest rates threaten to weigh further on already lackluster global economic growth.

The U.S.-Israeli-led war with Iran, now in its eighth month, and the inflation and hardship it has caused, will dominate the agenda and sideline conversations during the annual ⁠meetings of the International Monetary Fund (IMF) and World Bank, being held outside of Washington for the ⁠first time in three years.

Notably absent will be U.S. Treasury Secretary Scott Bessent, who dispatched two senior officials in his stead while he handled some "domestic engagements," a U.S. official said.

His decision to skip the high-profile gathering and a meeting of the G-20 major economies, which the U.S. leads this year, may frustrate counterparts amid rising tensions over the Iran war, ​Ukraine's battle with Russia and the U.S. move to impose sanctions on the International Criminal Court (ICC).

World Bank President Ajay Banga told Reuters ​that ⁠while global growth had held up better than feared when Iran closed the Strait of Hormuz, shutting off some 20% of the world's oil, pressures were building again.

Soaring prices for diesel, rising fertilizer prices and a looming "super" El Nino weather effect that experts say could lead to 450,000 heat-related deaths are all hitting at once.

G-7 countries have agreed to release 100 million barrels of diesel and crude oil from emergency reserves under pressure from U.S. President Donald Trump, who is keen to see lower gasoline prices before the November elections that could see his Republican Party lose control of Congress.

Trump on Friday announced a deal with Russia that would provide even more diesel to global markets and a temporary waiver of U.S. sanctions designed to deprive Moscow of revenues for its war on Ukraine. The move drew swift criticism from Ukrainian President Volodymyr Zelenskyy.

More than 1 billion barrels of oil have been released mainly from onshore commercial inventories since the start of the war on Feb. 28, but industry executives say the amount of oil in storage that is accessible to the global market is running low, making the market more fragile and fueling pressure on prices.

Banga said the bank was not revising down its global forecasts at the moment, but was keeping a close eye on developments.

"The real thing is not just El Nino by itself; it's the combination ... What's happening to fertilizer prices? What's happening to energy costs? What's happening to debt? It's that put together that ⁠creates its ⁠own challenges," he said.

"And I think that will call upon all of us to be far more careful on what we prepare for in the coming months."

Rising debt

IMF Managing Director Kristalina Georgieva issued a similar warning in her traditional curtain raiser speech previewing the meetings, telling the audience, "Winter is coming."

The IMF has signaled little change in its forecast for 3% global growth in 2026 and may edge its forecast for next year slightly higher.

But some countries will see downgrades, including Ukraine, now in its fifth year of war against Russia's invasion, and Gulf countries hit by Iranian strikes and sharply reduced energy exports.

IMF research released on Tuesday showed that sharp spikes in food and energy prices are an increasingly common source of crises that drive inflation expectations higher for longer, worsen poverty and threaten economic stability.

One huge headache for policymakers is the growing public debt burden that is sapping growth and adding inflationary pressures. The IMF says public debt is at the highest level since World War II and will exceed 100% of GDP before 2030.

Advanced economies, led by the U.S., have the highest debt-to-GDP ratios, but emerging markets and low-income countries are particularly vulnerable, given a perfect storm of challenges: capital outflows ⁠in search of higher U.S. rates, El Nino and lack of investment in AI, which has mitigated negative supply shocks in the U.S. and other rich countries.

Emerging market concerns

Developing countries are particularly vulnerable given high public debt levels that will have to be renegotiated at higher interest rates.

Interest payments already exceed 10% of revenue in developing countries on average.

Early in the COVID-19 crisis, G-20 leaders announced a suspension of debt service payments for the poorest countries, but there is little appetite for such ​action now, according to diplomats from G-20 countries, who said high debt levels and political pressures posed bigger hurdles this time.

Many lower-income countries are worried about new IMF recommendations for loan programs that call for ​fewer, but deeper reforms as a condition for approving lending, a change that many fear will lead to painful austerity measures.

"Countries are already cutting their expenditures because their debt payments are going high and because of the IMF conditionality," said Iolanda Fresnillo, who works on debt justice for Eurodad.

"We fear that this review of conditionality policy is just going to make things worse."

Kenya, she said, ⁠had avoided a debt restructuring by ‌cutting public expenditures and ‌trying to raise taxes, but the changes sparked significant protests, especially among young people.

The IMF risked losing credibility unless it acknowledged the severity of ⁠the crisis facing many developing countries.

"As long as they continue with the governance structure that they have, they are becoming less ‌and less relevant," she said.

Flight routes to Bangkok often route through the Middle East, posing immediate security challenges to the 10,000-plus travelers descending on Thailand's bustling capital city of 9 million residents following recent attacks on Saudi airports.