On the sidelines of the inaugural Europe Gulf Forum in Costa Navarino, Greece, International Monetary Fund Managing Director Kristalina Georgieva spoke with Atlantic Council President and CEO Frederick Kempe.
Georgieva shared her views on how the ongoing closure of the Strait of Hormuz compares to the COVID-19 pandemic in terms of economic fallout, as well as what European and Gulf States stand to gain by deepening their cooperation. She also discussed how artificial intelligence risks creating a new world of “winners” and “losers.”
The Europe Gulf Forum was hosted by the Antenna Group, in partnership with the Atlantic Council, on May 15-17, 2026.
Transcript
FREDERICK KEMPE: Welcome to Costa Navarino in Greece, a beautiful setting for a very timely conference, the Europe Gulf Forum. It’s just such a pleasure that we’re here with the managing director of the IMF, Kristalina Georgieva. We had a rich morning of discussions. They’re off the record, so we won’t reveal the private conversations and who said what. But yet there were some surprising observations and I’m just wondering what you took away from the morning here.
KRISTALINA GEORGIEVA: It was very interesting to listen to everybody; those who come from the Gulf, those who come from Europe. I take two things for the future of this forum. The first one is clearly there is recognition that the world has changed, to a great degree irreversibly, and is more multipolar. There are centers of gravity that need to be reflected on, and that in this world the Gulf and Europe have a lot of common interests. And secondly, it was also very impressive how much of those common interests got defined. Clearly open economies, they want trade to flow, they want investments to flow, and they don’t want to let this be just a process on its own.
They want to actively stimulate more of it between Europe and the Gulf. Secondly, a recognition that defense is going to be a higher priority. It is a higher priority for Europe and for the Gulf. There are two wars that are equally pressing in this direction, and that there has to be more engagement in the future. The very nature of defense is changing, will continue to change.
FREDERICK KEMPE: And these two regions hadn’t thought as much together on issues of defene?
KRISTALINA GEORGIEVA: Not in the past. Now that…
FREDERICK KEMPE: And that’s a change.
KRISTALINA GEORGIEVA: Now this is changing. And three, a common interest to join forces for Africa. They both have the proximity to Africa, but also they both are engaged with Africa more individually than together. So, I think that would be through the day other themes emerging, but it was impressive that already we can see some areas where the forum can contribute.
When governments provide help in an untargeted manner, what they do is they throw gasoline on fire.
FREDERICK KEMPE: Thank you for that. So, the other thing that I felt in the room was on the one hand, some relief at how resilient economies have been in Europe, in the Middle East, in the world, but also this balance between could resilience shift to crisis. Could you talk to us a little bit about where you see things going and what scenarios you see for the economy?
KRISTALINA GEORGIEVA: The Gulf has been a bright spot on a rather gloomy economic horizon for quite some time. Why? Because the Gulf countries not only benefit from the richness of oil gas, but because they have put in place strong policies and institutions, they are now much more like advanced economies, much more like Europe in terms of their monetary policy, in terms of their fiscal policy, sometimes even doing better. And on the other side, we know that Europe is struggling with slow growth, and it is highly motivated to find the path through structural reforms to improve competitiveness. When I look at the overlay economically, what do I see? Both are impacted by this war quite severely.
The Gulf, of course, dramatically because it is on the receiving end of a tax. Europe through the higher prices of gas. So, they both have a motivation to find a way to reduce the severity of this impact. And it was interesting to listen to lessons they have learned. How do you build resilience? How you deploy this resilience? Looking forward, there are four numbers to watch. Numbers tell a story. Price of oil, inflation, cost of borrowing, and risk of a more dramatic hit on financial stability. So, when we watch these things, what do we see today? Oil price, inflation, cost of borrowing potentially going in the wrong direction.
FREDERICK KEMPE: Everything of those numbers getting worse.
KRISTALINA GEORGIEVA: Numbers are getting worse. The oil price is hovering above a hundred dollars. In our projections, if this continues through this year, we would see a much more significant slowdown in global growth and potentially upticking of inflation. Most significantly, yes, inflation is climbing up. Most significantly, we see recently that yield on government debt is also going up. All of this taken together puts a risk that central banks that are now in a look through the pressures of going prices going up, they may need to act. How do they act? They will have to tighten. So, if that is to happen, then we might have all of a sudden cold water thrown on what has been buoyant market.
And I am praying that we see prudent approach by governments on how they can limit the risk of tightening by being very careful how they use their very limited fiscal space. When governments provide help in an untargeted manner, what they do is they throw gasoline on fire. They make the risk of inflation actually worse.
This asymmetry is very profound, and it may mean that some countries avoid recession and some countries don’t.
FREDERICK KEMPE: So, what’s your best-case scenario? What’s your worst-case scenario? And interestingly, maybe you can also share how you compare this to the COVID crisis, because many people have been doing that I think improperly.
KRISTALINA GEORGIEVA: Well, the best-case scenario of course is for the war to end today. Even if the war is to end today, it would take three to four months at least for normalization of supplies, because you have to clean the strait from mines, and then tankers are very slow-moving vessels. That is to say that March we didn’t feel any impact. April, a little bit. May is going to go up. Then we have June and July and August, and that means that restrictions of quantities are going to bite, not just prices are going up. Yet if we have an end of the war, we would have a more manageable situation in which growth would slow a bit, not a lot. Inflation may not even provoke central banks to take action.
If we are in the end of the year and oil prices are still above a hundred dollars, inflation continues to climb up, then central banks will be forced to pay attention to longer term inflation expectations. They have to set a signal that they’re not going to sit idle. They will act. If they act, that means tightening of financial conditions in a world of very high debt, and this debt service is going to bite in the limited fiscal space countries have.
If we are in ‘27 and there is still a situation of uncertainty, even if it is not an active war—the phrase “no war, no peace” was used—if we are in that place, then we may see dangerously slipping down to recession territory, and that of course for a world that needs the opposite—we need more growth—is going to be quite a taxing. What are the factors that would determine where we land: duration of hostilities and the impact on the strait and size and magnitude of destruction of physical infrastructure in the Gulf.
FREDERICK KEMPE: So, the worst-case scenario could be as much as 2027 world recession of some sort?
KRISTALINA GEORGIEVA: Yes, that could be. And of course, we pray that is not the case, but that needs more than pray. It needs peace.
FREDERICK KEMPE: And last question…
KRISTALINA GEORGIEVA: COVID, you asked me about that compares to COVID.
FREDERICK KEMPE: Yes, please, please.
KRISTALINA GEORGIEVA: Not COVID. COVID was an abrupt supply and demand shock. The world economy came to standstill and then there was gradual recovery. Everybody was hit with the same virus, no discrimination. And the geopolitical environment was before two wars that now have made the world more complicated. In this case, first, if you are an oil exporter, you’re in a better position; US economy is doing better. So, do other economies that are actually scaling a production; Canada, Angola come to mind. Second, if you have fiscal space, if you are a wealthy country, or if you have built reserves of oil—China has 1.4 billion barrels of reserves—then you can deal with this.
If you don’t, you’re in a very difficult position. This asymmetry is very profound, and it may mean that some countries avoid recession and some countries don’t. And it is very important to recognize that our ability as a global community to handle this shock is undermined by the very fact that this is not a virus, but a geopolitical problem that restricts ability to cooperate.
What Mythos is telling us is that now vulnerabilities can be exposed and then exploited even by people who have no literacy, either digital or financial literacy.
FREDERICK KEMPE: At a time when we have less fiscal room for maneuver to start with. Last question. It interests me a lot at the IMF-World Bank meetings. I had conversations with central bank governors, finance ministers, and you talked about debt and inflation and of course the dangers of what’s going on in the Middle East. But what came up a lot, almost as often, was Mythos and artificial intelligence. If you’re looking at a geopolitical warning or a hinge point in the economy, I call them inflection points. Is it the Iran war or is it really Mythos and artificial intelligence?
KRISTALINA GEORGIEVA: Well, actually it could be both. The artificial intelligence story is very real. The world has been changing already. We expect on the positive side to see increase in productivity and up to 0.8 percent stronger growth in the years to come. This is so important in a world that has been lingering with slow growth for so long, but it also creates two major risks. One is the risk of division within countries and across countries. Some do well and others fall behind. The labor market is going to transform. Who are going to be the winners? Are we going to see losers?
FREDERICK KEMPE: A new sort of digital divide.
KRISTALINA GEORGIEVA: Can we see a repeat of the story of globalization when, yes, we went up on the whole, but some were left behind. And the second one is financial stability risk. What Mythos is telling us is that now vulnerabilities can be exposed and then exploited even by people who have no literacy, either digital or financial literacy. And this is where the importance of conversations on how we can deal with these risks.
And frankly, if I want this war to be over, it is also because it sucks away attention from the most important revolution, technological revolution of our times rather than putting the guardrails and protecting against financial stability risks we are divided and understandably preoccupied with the impact of the war in the Middle East.
FREDERICK KEMPE: So, madam managing director, it’s wonderful to have this conversation here in this beautiful setting in Greece, where I think we’re discovering that there’s a lot of potential in this Europe Gulf relationship that hasn’t been realized. And thank you for letting us understand that.
KRISTALINA GEORGIEVA: And I think we will see more closeness between two parts of the world that have so much in common.
FREDERICK KEMPE: Thank you so much.
KRISTALINA GEORGIEVA: Thank you.
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Image: Kristalina Georgieva attends the Europe Gulf Forum in Costa Navarino, Greece, on May 15, 2026. (Ryan Jenkinson / Parsons Media)