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 \u2013 hitting the most vulnerable hardest.<\/p>\n
In a sweltering hot Washington DC this week, the message at the International Monetary Fund meetings<\/a> was chilling: things had been looking up for living standards around the world. But then came the Iran war.<\/p>\n \u201cSome countries are in panic,\u201d said the fund\u2019s managing director, Kristalina Georgieva, addressing the finance ministers and central bank bosses in town for the IMF and World Bank<\/a> spring meetings. \u201cThe sooner it [the Iran war] ends, the better for everybody.\u201d<\/p>\n Such gatherings are not typically used to fight geopolitical battles. \u201cYou don\u2019t get people shouting at one another at these things,\u201d one senior figure remarked. But, as a record-breaking April heatwave<\/a> swept the US capital, no one could ignore the mounting damage from the Iran war.<\/p>\n Those familiar with the mood over breakfast at a meeting of the G20\u2019s representatives on Thursday, which included Donald Trump\u2019s treasury secretary, Scott Bessent, and the outgoing US Federal Reserve chair, Jerome Powell \u2013 said the atmosphere in the room was sombre amid an open exchange of serious views.<\/p>\n \u201cIt is such a twilight-zone meeting,\u201d said Mohamed El-Erian, a former IMF deputy managing director who is now chief economic adviser at the Allianz insurance group. \u201cThere are several shadows hanging over it: one is the shadow that comes from concern about the global economy as a whole.<\/p>\n \u201cThe second is that some countries are going to be particularly hard hit, and it\u2019s 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.\u201d<\/p>\n Before Thursday\u2019s 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<\/a> with a not-so-subtle dig: \u201cFriends that run together \u2013 work together.\u201d<\/p>\n A day earlier, the chancellor had told a CNBC conference that she thought \u201cfriends are allowed to disagree on things\u201d as she criticised Trump\u2019s Iran war<\/a> as a \u201cmistake\u201d and a \u201cfolly\u201d that had not made the world safer.<\/p>\n Rachel Reeves posted this image on Instagram from Washington DC on Thursday with the message: \u2018Friends that run together \u2013 work together.\u2019 Photograph: Rachel Reeves\/Instagram<\/p>\n Speaking at a venue just steps away from the White House, before a one-on-one meeting with Bessent, she said this \u201cfair message\u201d was needed because UK families and businesses were feeling the pain from higher energy prices triggered by the conflict.<\/p>\n 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.<\/p>\n But with the IMF having warned on Tuesday that the Iran war could risk a global recession \u2013 in which Britain would be the biggest G7 casualty<\/a> \u2013 it was clear Reeves had travelled to Washington ready to pick a fight.<\/p>\n \u201cI\u2019m struck by how vocal she has been and the words she used,\u201d said one global financier. \u201cWe know the disagreement between Bessent and [European Central Bank president] Christine Lagarde<\/a> earlier in the year. But that was in private.\u201d<\/p>\n At a cocktail party held at the British ambassador\u2019s residence for hundreds of diplomats and financiers \u2013 including the Bank of England\u2019s governor, Andrew Bailey, the chief executive of Barclays, CS Venkatakrishnan, and dozens of senior figures \u2013 this transatlantic tension, weeks before King Charles\u2019s US state visit, was a major topic of conversation.<\/p>\n The other, in the balmy residence gardens, was one of its former occupants, Peter Mandelson, as revelations about the former ambassador\u2019s appointment<\/a> threatened to further rock the UK government.<\/p>\n 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.<\/p>\n For many at the meetings, the focus was on forging closer global cooperation without the world\u2019s pre-eminent superpower.<\/p>\n \u201cEverybody is talking about how you hedge against American decisions,\u201d said David Miliband<\/a>, the former UK foreign secretary, who now runs the International Rescue Committee. \u201cYou can\u2019t do without them, because they\u2019re 25% of the global economy. But, in a lot of fora, they\u2019ve pulled out.<\/p>\n \u201cSo 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.\u201d<\/p>\n 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\u2019s meeting was taking place amid these intertwining problems.<\/p>\n 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 \u2013 behind the security cordons and construction equipment blocking the White House from public view. \u201cIt is not clear they can do anything about it,\u201d said El-Erian.<\/p>\n Still, with a booming economy driven by AI \u2013 including Anthropic\u2019s powerful Mythos model, the topic of much conversation<\/a> \u2013 most countries cannot afford to completely break off US ties.<\/p>\n \u201cPeople want to find ways to insulate themselves from the mess. But, on the other hand, they admire the US private sector,\u201d El-Erian said. \u201cThe best way I\u2019ve heard it put, is: they want to go long the private sector and short the mess. But it\u2019s almost impossible to do.\u201d<\/p>\n