Saudi Finance Minister Mohammed Al Jadaan warned on Friday that it could take time for Gulf exporters to increase production owing to extensive infrastructure damage caused by Iranian attacks.
The US and Iran announced the reopening of the Strait of Hormuz after a 10-day ceasefire was announced between Israel and Lebanon. Mr Trump said the US naval blockade of the strait would remain in effect and Tehran has cautioned that nullify the agreement.
Oil prices tumbled after the initial announcement in the strait with Brent, the global benchmark for crude, and US crude both down more than 10 per cent.
“We all know that there is a very serious disconnect between the paper market and the actual physical market,” Mr Al Jadaan said during a briefing at the International Monetary Fund.
The effective closure of the strait affected the transport of about 20 per cent of the world's oil consumption, with choked supply chains also having significant effects on natural gas and fertiliser.
Among the key sites damaged by Iranian attacks in the Gulf are the UAE's Shah gas plant, Saudi Arabia's Ras Tanura refinery, Kuwait's Mina Al Ahmadi refinery and Qatar's Raf Laffan Industrial Complex. Saudi Arabia's East-West Pipeline also sustained damage, although the Ministry of Energy did not specify which country struck it. The pipeline returned to full capacity this week.
While some countries will be able to restore production quickly, Mr Al Jadaan warned that the extent of the infrastructure damage could take longer for others to repair. He also said he wanted to see tankers moving in the strait, insurance companies providing coverage at a reasonable cost and tanker owners willing to send ships through the waterway.
“That would trigger, for me, a change in the scenario,” Mr Al Jadaan added.
The announcement of the reopening of the strait came while Mr Al Jadaan, who leads the IMF's steering committee, attended the semi-annual plenary gatherings in Washington.
The International Monetary Finance Committee said the Iran war “poses a serious threat to the global economy” despite efforts to reroute energy supply to bring exports to the market. Projections released by the fund this week said a best-case scenario would lead to a moderate downgrade in global growth, while a prolonged conflict would drag it towards recession.
Updated figures also pointed to contractions in Bahrain, Kuwait, Iran, Iraq and Qatar, while Oman, Saudi Arabia and the UAE's outlooks also received downgrades.
IMF managing director Kristalina Georgieva said the recent measures announced on Friday only reduce – but do not eliminate – global anxiety.
“We are still at the time when durable peace is to be achieved and the product of this piece a free passage to be sustainable,” she said, although she believes the global economy is still closer to the fund's more optimistic scenario.
IMF and World Bank prepare global response
Ms Georgieva said the IMF, World Bank and other multilateral organisations are preparing a sizeable response to assist countries hit hardest by the conflict.
She said the fund expects near-term demand for its financial support to range between $20 billion and $50 billion, with demand for new programmes for at least a dozen countries, most of them in Africa.
While the IMF is able to provide economic support in the form of loans, Ms Georgieva said the World Bank's ability to provide funding through grants makes it a powerful vehicle for economies.
World Bank president Ajay Banga has said the institution could provide up to $100 billion in funding. It is currently preparing to provide $25 billion in rapid financing support.
“We are ready to go bigger if necessary, but we pray there is a faster development,” Ms Georgieva said.
