‘It’s a twilight zone’: Iran war casts deep shadows over IMF gathering in Washington

The most severe energy shock since the 1970s, the risk of a global recession and households everywhere stomaching a renewed surge in the cost of living – hitting the most vulnerable hardest. In a sweltering hot Washington DC this week, the message at the International Monetary Fund meetings was chilling: things had been looking up for living standards around the world. But then came the Iran war. “Some countries are in panic,” said the fund’s managing director, Kristalina Georgieva, addressing the finance ministers and central bank bosses in town for the IMF and World Bank spring meetings. “The sooner it [the Iran war] ends, the better for everybody.” Such gatherings are not typically used to fight geopolitical battles. “You don’t get people shouting at one another at these things,” one senior figure remarked. But, as a record-breaking April heatwave swept the US capital, no one could ignore the mounting damage from the Iran war. Those familiar with the mood over breakfast at a meeting of the G20’s representatives on Thursday, which included Donald Trump’s treasury secretary, Scott Bessent, and the outgoing US Federal Reserve chair, Jerome Powell – said the atmosphere in the room was sombre amid an open exchange of serious views. “It is such a twilight-zone meeting,” said Mohamed El-Erian, a former IMF deputy managing director who is now chief economic adviser at the Allianz insurance group. “There are several shadows hanging over it: one is the shadow that comes from concern about the global economy as a whole. “The second is that some countries are going to be particularly hard hit, and it’s mostly countries that very few people are talking about. But the third concern is the adding of insult to injury: the fact that the US, which started a war of choice, is going to be hit, but by a lot less than elsewhere in relative terms.” Before Thursday’s breakfast, Rachel Reeves had started her day with an early-morning jog. Joined by her counterparts from Spain, Australia and New Zealand for a run down the iconic National Mall, she posted an Instagram selfie with a not-so-subtle dig: “Friends that run together – work together.” A day earlier, the chancellor had told a CNBC conference that she thought “friends are allowed to disagree on things” as she criticised Trump’s Iran war as a “mistake” and a “folly” that had not made the world safer. Rachel Reeves posted this image on Instagram from Washington DC on Thursday with the message: ‘Friends that run together – work together.’ Photograph: Rachel Reeves/Instagram Speaking at a venue just steps away from the White House, before a one-on-one meeting with Bessent, she said this “fair message” was needed because UK families and businesses were feeling the pain from higher energy prices triggered by the conflict. Those close to Reeves insist her meeting remained cordial. Britain and the US have significant shared interests in AI, financial services and trade. The chancellor also said the UK government had little time for the Iranian regime. But with the IMF having warned on Tuesday that the Iran war could risk a global recession – in which Britain would be the biggest G7 casualty – it was clear Reeves had travelled to Washington ready to pick a fight. “I’m struck by how vocal she has been and the words she used,” said one global financier. “We know the disagreement between Bessent and [European Central Bank president] Christine Lagarde earlier in the year. But that was in private.” At a cocktail party held at the British ambassador’s residence for hundreds of diplomats and financiers – including the Bank of England’s governor, Andrew Bailey, the chief executive of Barclays, CS Venkatakrishnan, and dozens of senior figures – this transatlantic tension, weeks before King Charles’s US state visit, was a major topic of conversation. The other, in the balmy residence gardens, was one of its former occupants, Peter Mandelson, as revelations about the former ambassador’s appointment threatened to further rock the UK government. Before the war, the agenda for the IMF had been about global cooperation; the adoption of AI, jobs and work to eradicate poverty. Each of those tasks had now been complicated, but not least the task of countries working together. For many at the meetings, the focus was on forging closer global cooperation without the world’s pre-eminent superpower. “Everybody is talking about how you hedge against American decisions,” said David Miliband , the former UK foreign secretary, who now runs the International Rescue Committee. “You can’t do without them, because they’re 25% of the global economy. But, in a lot of fora, they’ve pulled out. “So everyone has to think, how does one structure international cooperation? The old west is not coming back. And so everyone has to figure out how to position themselves for that world.” For those gathering in Washington, there was irony in the fact that they were meeting in the halls of institutions founded, under US leadership, to promote global cooperation after the second world war. The whole idea of the Bretton Woods institutions was to avoid the dire economic conditions and warfare of the 1930s and 1940s. Yet this year’s meeting was taking place amid these intertwining problems. In their conversations about the best economic policy response to the shock of conflict, the economists also knew the real power to make a difference lay two blocks across town from the IMF and the World Bank – behind the security cordons and construction equipment blocking the White House from public view. “It is not clear they can do anything about it,” said El-Erian. Still, with a booming economy driven by AI – including Anthropic’s powerful Mythos model, the topic of much conversation – most countries cannot afford to completely break off US ties. “People want to find ways to insulate themselves from the mess. But, on the other hand, they admire the US private sector,” El-Erian said. “The best way I’ve heard it put, is: they want to go long the private sector and short the mess. But it’s almost impossible to do.”