US Treasury secretary tells BBC ‘bit of pain’ worth long-term security

US Treasury Secretary Touts ‘Small Economic Setback’ as Necessary for Security

Scott Bessent, the US Treasury Secretary, expressed to the BBC that a ‘modest economic setback’ was justified to neutralize the threat of Iranian nuclear attacks on Western capitals. Amid concerns raised by the International Monetary Fund (IMF) about the potential for a global economic downturn due to the US-Israel conflict with Iran, Bessent emphasized that long-term security gains would outweigh short-term costs.

“I ponder the effect on global GDP if a nuclear strike hit London… My focus is on long-term stability, not immediate economic forecasts,” he remarked.

Iran has consistently maintained that its nuclear program is purely peaceful. Meanwhile, the UK government stated there was ‘no evaluation’ that Iran intended to target Europe with missiles. Bessent, however, argued that the risk of Iranian nuclear strikes posed a greater danger than the economic repercussions.

“The most critical risk is one you remain unaware of. Now that we know Iran possesses mid-range ballistic missiles capable of reaching London and seeks nuclear capability, the threat is clear,” he explained.

Bessent claimed that US and Israeli military actions had mitigated the ‘tail risk’ of Iranian nuclear attacks on Western nations. Previously, the BBC reported that the likelihood of Iranian missiles targeting London was low. Yet, the IMF cautioned that prolonged conflict could derail global growth, forecasting a 2% decline in 2026 under extreme conditions.

IMF’s Economic Outlook

The IMF outlined a worst-case scenario in its World Economic Outlook report, where oil, gas, and food prices remain elevated for two consecutive years, potentially pushing global growth below 2% in 2026. This would bring the world close to a global recession, a phenomenon that has occurred just four times since 1980, notably during the pandemic.

Since the war began over six weeks ago, energy prices have surged after the Strait of Hormuz trade route was effectively blocked and peace negotiations between the US and Iran stalled. Gourinchas, the IMF’s chief economist, warned that a drawn-out conflict could trigger soaring inflation, rising unemployment, and food shortages in certain regions.

“Even if the conflict ended today, the disruption to oil supply would rival the 1970s crisis,” Gourinchas said.

Despite the economic strain, the world is now less reliant on oil and fossil fuels, according to Gourinchas, which would soften the impact on consumers. While oil prices briefly neared $120 during the conflict, they have since retreated to around $95 per barrel.

UK Economic Impact

The IMF projected that the UK would be the most affected among advanced economies by the energy crisis linked to the Iran war. It revised its growth forecast for the UK this year to 0.8%, down from 1.3%. However, it anticipates a recovery with 1.3% growth next year.

In contrast, Gulf oil-exporting nations are expected to face significant economic slowdowns or contractions this year. The IMF also predicted a 6.1% contraction in Iran’s economy this year, with a 3.2% rebound in 2027 if the war concludes swiftly. This outlook, however, remains uncertain.

On Sunday, US President Donald Trump announced a blockade of Iranian ports to address the escalating tensions. The move underscores the ongoing geopolitical stakes, which continue to ripple across global markets.