Iran energy shock to cut eurozone growth by 0.4 percentage point: ECB

[FRANKFURT] The energy shock caused by the Iran war is set to reduce economic growth in the eurozone by 0.4 percentage point this year, based on current energy prices and previous episodes, the European Central Bank (ECB) said on Wednesday (Jun 24).

The attack on Iran and the ensuing closure of the Strait of Hormuz have made fuel more expensive for the energy-importing eurozone, leading the ECB to reduce its growth estimates twice since March, and raise borrowing costs this month.

ECB economist Johannes Gareis looked at a series of oil shocks since 1985 alongside indicators of economic activity, private consumption, investment, consumer prices, and short and long-term interest rates to estimate the impact of the Iran conflict.

He wrote in an ECB bulletin: “Using the current oil futures curve, and assuming that geopolitical oil supply shocks account for most of the implied oil price changes in 2026, the war in the Middle East is estimated to reduce euro area real gross domestic product growth by around 0.4 percentage point over the first year.”

“Unlike in the other episodes, the impact is likely to build up gradually over the year. This reflects the further substantial increase in oil prices expected in the second quarter of 2026, and the more persistent path implied by the futures curve.”

The ECB expects the eurozone economy to grow by 0.8 per cent this year, 1.2 per cent in 2027 and 1.5 per cent in 2028.

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Since those projections were published, the US and Iran have signed a ceasefire deal and begun talks. REUTERS