Mozambique is not in total crisis – but it is faltering. There has been no currency crash, no hyperinflation, no bank run. But over the past decade the main indicators of the country’s economic health have severely eroded.

An IMF assessment in early 2026 was remarkably blunt: public debt is unsustainably high, the external balance of payments is weak, and policy makers have limited options. Since then, tensions in the Middle East have further disrupted supply chains and dramatically raised global fuel prices. This is a major shock for small import-dependent economies, like Mozambique.

My analysis draws on over two decades of experience supporting economic research and policy analysis in the country. Currently, my work under the Inclusive Growth in Mozambique programme involves tracking the country’s economic performance through surveys of firms, students, and households.

The picture that emerges from this evidence is troubling. For ordinary Mozambicans, the deterioration in conditions over the past decade shows up in higher poverty, unreliable public services and a labour market that offers few decent opportunities – especially for the young.

My central argument is that muddling through is not a safe option. Without careful adjustments now and a deliberate shift toward growth and job creation outside extractives – the part of the economy that actually employs most Mozambicans – today’s pressures will keep building until a large economic correction becomes unavoidable and under far worse conditions.

A slow squeeze

The country’s present condition is one of vulnerable stagnation. Since the hidden debt crisis of 2016, real GDP growth outside the extractive sector has hovered around 2%, barely matching population growth. In per capita terms, the non-extractive economy has flatlined for a decade. Average real incomes outside mining and gas (or the public sector) have gone essentially nowhere.

Fiscal deficits of 4%-6% of GDP have been financed increasingly by domestic banks. But as both the IMF and World Bank have warned, that model is now reaching a breaking point. Banks can only absorb so much government debt before they run out of willingness – or capacity – to lend. When that happens, the government faces a choice between defaulting, printing money, or slashing spending abruptly. None is painless.

Evidence of these pressures is plain to see. Over a year ago, the global rating agency S&P classified local-currency debt as “selective default”. This is a formal determination that the government had failed to meet its obligations to domestic creditors on the original terms, even if it continued paying.

By late 2025, arrears had extended to short-term treasury bills – government IOUs that mature within months and are supposed to be the safest instruments in the domestic financial system. When a government struggles to repay even these, it signals serious fiscal distress.

On top of this, a decade of crisis management has displaced any serious thinking about growth. The government’s wage bill and debt service dominate spending, leaving chronic underinvestment in infrastructure, education, and agriculture. Schools and health facilities lack supplies, roads deteriorate, and social protection has weakened sharply.

Payments under the basic social subsidy programme have become highly irregular. Many elderly beneficiaries receive only a fraction of what they are owed. Poverty has increased, with around two thirds of the population now below the poverty line.

Demographic pressures are intensifying. Mozambique needs to absorb roughly 500,000 new labour market entrants annually by 2030, yet the formal sector generates a small fraction of new jobs. Informal work dominates and without a step-change in growth, it will only expand. Each year of stagnation adds another youth cohort to an already strained labour market. Delay does not preserve stability – it makes eventual adjustment larger and more costly.

The exchange rate question

The metical has been held stable against the US dollar since 2021, but in real terms it has appreciated by over 20%, eroding export competitiveness. Foreign exchange shortages are now pervasive. The parallel market premium reached around 14% by late 2025. Firms report severe and lengthening delays in accessing foreign exchange through formal channels.

The policy response has been administrative: raising exporter surrender requirements, tightening banks’ foreign exchange position limits, restricting overseas card usage. These measures treat symptoms, but the underlying misalignment only deepens.

The overvalued exchange rate functions as a tax on the non-resource economy. Recent fuel shortages and panic buying – driven in part by importers’ inability to secure foreign exchange and price uncertainty – provide a visible demonstration of the mounting costs.

The politics of adjustment

In practice, public sector employment has come to serve as a form of social protection for the urban middle class. Our research shows roughly half of all university graduates find employment in the public sector, and having a public sector job is one of the best predictors of not being poor.

The public sector wage bill underpins political legitimacy, which is why attempts to cut discretionary 13th-month salary payments were quickly reversed once key workers threatened to strike.

Exchange rate adjustment poses a parallel dilemma. A depreciation would raise the cost of imported food and fuel, hitting urban households directly, and any price increase would spark calls to hike minimum wages. With the memory of popular violence from the 2024 elections still fresh, there is a strong bias toward the status quo.

But as pressures mount, there is a growing risk of compounding distortions. So far the temptation has been to respond with new administrative controls, including import restrictions, tighter capital controls, and preferential credit allocation.

The ongoing handling of the fuel price shock illustrates the pattern. Rather than adjust pump prices promptly, the government has held prices fixed, leaving distributors to manage a mounting shortfall through supply rationing.

Each temporary fix may ease immediate pressures, but tends to deepen the underlying misalignment, push activity into informal channels, and narrow future options.

Feasible pathways

Path 1: Muddle through and wait for the gas. This is the current trajectory. Fiscal adjustment occurs passively, driven by financing constraints rather than strategy. The hope is that LNG revenues could materialise from the early 2030s. Mozambique’s Rovuma Basin holds an estimated 100 trillion cubic feet of recoverable natural gas – among the largest discoveries globally in the past two decades. But only one offshore platform (Coral South) is currently producing. Even if the 2030 timeline holds, continued stagnation would further erode public services, weaken institutions, and deepen social frustration – and another general election must be managed. By the time resource revenues arrive, the state may lack the capacity and public trust to deploy them effectively.

Path 2: Gradual, growth-first adjustment. The most economically coherent path, though politically demanding. The central premise: restoring non-extractive growth must take priority, even at the cost of short-term macroeconomic discomfort. Key elements would include:

• a phased depreciation of the metical to restore competitiveness, supported by clear communication and strengthened social protection

• acceptance of temporarily higher inflation, with policy focused on preventing second-round effects rather than suppressing the initial price shift

• a fiscal framework centred on spending quality and revenue efficiency

• wage bill containment through hiring restraint, attrition, and systematic payroll audits to eliminate ghost workers and improper payments

• re-engagement with external partners under a credible IMF programme framework; and

• an evidence-based and financially viable medium-term growth strategy targeting agricultural productivity, labour-intensive exports and a predictable regulatory and macroeconomic environment.

Path 3: Forced correction. If external shocks bite deeper, a large adjustment may be imposed suddenly – involving disorderly exchange rate movement, abrupt fiscal contraction, and potential banking sector stress. The longer gradual adjustment is postponed, the higher this probability.

The narrow path

There is no easy option. Every adjustment has visible losers, while the benefits remain uncertain, delayed, and diffuse.

But one priority stands out: boosting growth beyond extractive sectors. Without it, fiscal consolidation is self-defeating, job creation will remain grossly inadequate, and social pressures will only intensify. Stabilisation pursued in isolation, or at the expense of growth, could be bad medicine.

This growth strategy must be grounded in data, evidence and honest debate. Mozambique has not lacked for projects or initiatives, but it has lacked consistent use of rigorous data to identify what drives productivity and job creation.

The window for a controlled, policy-driven adjustment is narrowing fast. The alternative is not stability. It is adjustment under far worse conditions, at higher cost.

Sam Jones does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

The Strait of Hormuz – the narrow waterway through which between 20% and 25% of the world’s seaborne oil normally passes – has been effectively closed for just over two months.

As tensions have escalated, Iran has restricted passage through the Strait, while the US has imposed a naval blockade on Iranian shipping, sharply limiting Tehran’s ability to export crude. On May 3, the US president Donald Trump announced Project Freedom, by which US warships would escort vessels from countries not involved in the conflict through the Strait. But some reports have suggested that Iran has since fired on several ships attempting to transit and the waterway remains effectively closed.

The immediate consequences are tankers stranded, prices surging, and Iran rapidly running out of places to store its oil. Analysts now warn that storage could fill within weeks, forcing producers to shut wells altogether.

But the deeper story lies far below the surface. Oil wells are not designed to be switched off and on at will. And when they are, the damage can linger long after the crisis has passed.

To understand why, it helps to ditch the idea of oil fields as underground lakes. In reality, oil sits trapped inside microscopic pores in rock, typically a hundredth of a millimeter wide, held there by pressure, temperature, and a delicate balance between oil, gas and water.

Shutting them down, especially abruptly and for long periods, can alter their internal balance in ways that are difficult, sometimes impossible, to reverse. Production works because the system is in motion. When a well is open, pressure differences drive oil toward the wellbore (a drilled channel connecting the oil reservoir to the surface). Over time, that pressure naturally declines, which is why operators use techniques such as water or gas injection to maintain flow.

The key point is that reservoirs are dynamic. They depend on continuous management to remain productive.

Shut the well and the movement of the oil stops. The consequences begin almost immediately. One of the first changes occurs in pressure distribution. While shutting down a well can temporarily allow pressure to build back up near the wellbore, the broader reservoir may experience uneven redistribution.

In fields that rely on carefully managed injection, where water or gas is pumped in to push oil out, halting operations disrupts that system. The injected fluids can migrate unpredictably, sometimes bypassing oil-rich zones entirely when production resumes. The fluid can chose a different path for movement so it may no longer push the oil out of the reservoir.

Then there is the chemistry. Crude oil is not a uniform substance; it contains heavier components such as waxes and asphaltenes — long-chain hydrocarbons and dense, complex molecules that can solidify or precipitate out under changing conditions. Under stable flow conditions, these remain dissolved. But when flow stops and temperatures or pressures change, these components can essentially clog the tiny pores in the rock or the well itself. Once deposited, these materials can restrict flow unless expensive – and not always successful – techniques are used to repair the damage.

Water adds another layer of complexity. All reservoirs contain formation water (the naturally occurring water trapped in the rock alongside oil and gas), and in some cases injected seawater. When a well is shut in, water can intrude into zones that previously produced mostly oil. Over time, this “water invasion” can become entrenched, meaning that when production resumes, the well produces far more water and far less oil. Separating and disposing of that water is costly, and in some cases the oil production becomes uneconomic.

There are also mechanical risks. The well itself is lined with steel casing and cement, and is designed to operate under certain conditions. Long shutdowns can lead to corrosion, scaling (mineral build-up), or even structural integrity issues. In extreme cases, restarting a well can require significant reworking, akin to reopening a mine that has partially collapsed.

Perhaps the most misunderstood aspect is what happens at the scale of the whole oil reservoir over longer periods. Some reservoirs are highly sensitive to pressure changes. If pressure drops too low or fluctuates unpredictably, the rock structure can compact. This compaction reduces the pores available to store and transmit fluids, permanently lowering the field’s production potential.

Gas behaviour also matters. In many reservoirs, gas is dissolved in oil under high pressure. When pressure falls below a certain threshold, gas comes out of solution, which forms bubbles that can block flow pathways . If this happens unevenly during a shutdown, it can leave behind pockets of oil that are effectively stranded.

All of this helps explain why operators are cautious about shutting in production unless they have to. It is not just a matter of lost revenue during downtime – it’s the risk of losing future production capacity altogether. That said, not all wells suffer equally. Some reservoirs are more resilient.

In many cases, particularly in large conventional fields, production can be restored relatively quickly after a shutdown, as seen in past disruptions. But this doesn’t mean the reservoir is unaffected – even when output returns, subtle changes can reduce efficiency, increase costs, or leave some oil permanently unrecovered. In practice, this can mean a reduction in how much oil is ultimately recoverable. Some pockets may become harder to access or uneconomic to produce under normal conditions, even if they remain physically in place. That does not imply the oil is lost forever, but it can shift part of it beyond reach with current technology or prices, effectively lowering the field’s long-term yield.

There are environmental risks too. Closure of wells may cut emissions in the short term, but pressure instability can increase methane leakage. Restarting wells often involves flaring and venting, adding further emissions. Over time, water intrusion and reservoir damage can raise the environmental cost per barrel, as more energy is needed to extract less oil.

Modern engineering can mitigate some risks through careful planning maintaining minimal circulation, managing pressure, or using chemical treatments. But these measures require time, coordination, and resources, which may not be available in a sudden geopolitical crisis.

The broader lesson is that oil production is not easily paused and resumed like a factory assembly line. It is a continuous interaction with a complex natural system. Interruptions especially abrupt, large-scale ones can leave lasting scars beneath the surface, long after the valves are reopened.

Nima Shokri is affiliated with Hamburg University of Technology.

Martin J. Blunt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.