Finance experts increasingly concerned about impact of Iran war on German economy

Financial market experts believe the energy price shock resulting from the Iran war is significantly increasing the risks for Germany’s economy, according to a survey by economic research institute ZEW. A prolonged conflict would sharply slow economic growth and trigger a spike in inflation, the experts said. In the case of a swift end to the war, economic consequences would be limited, but this scenario appeared increasingly unlikely, they said.  

The most common expectation in the expert survey was a medium-duration scenario, in which the conflict will last for up to three months and lead to a “palpable” reduction in economic growth, while pushing inflation to about 2.7 percent. A longer lasting and further escalating conflict would imply a period of economic stagnation and even higher inflation levels, the experts said.

High energy prices are being driven by damage to oil and gas infrastructure in Iran, Qatar, the United Arab Emirates, and other major fossil fuel producers in the region, as well as by a blockade of the Strait of Hormuz shipping route. 

The International Energy Agency (IEA) warned that it could take six months to restore oil and gas flows from the Gulf. IEA chief Fatih Birol told the Financial Times the world is facing what could be the most severe energy crisis in history. “It will be six months for some [sites] to be operational, others much longer,” Birol said. He added that politicians and markets were underestimating the scale of the disruption.

The increased uncertainty over future energy prices is holding back investors and prompting households to save more, ZEW said. Higher energy prices increase production costs for industry, while simultaneously reducing consumers’ purchasing power. In addition, supply chain disruptions for fossil-fuel based products, such as plastics, further weigh on planning security and price stability. “This is especially relevant for Germany, since its economy is highly energy-dependent,” the researchers added. 

Likely policy responses to the energy price shock include fiscal measures to relieve companies and households, while monetary policy faces a dilemma between curbing inflation and supporting growth, ZEW said. In a first response to the fossil fuel price shock, the government released part of the country’s strategic oil reserves in coordination with other states and introduced a set of rules for petrol station operators to limit excessive price increases at the pump. 

Germany’s economy in late 2025 showed first signs of a recovery, after a prolonged period of stagnation caused in part by the external shocks of the coronavirus pandemic, the energy crisis and Russia’s invasion of Ukraine. The government adopted an unprecedented debt package of 500 billion euros in March last year for investments in infrastructure and climate neutrality, which contributed to reigniting growth.

In a status report released earlier this week, Germany’s economy ministry said that the upswing in late 2025 had already lost momentum in early 2026. Indicators for industry production were pointing downward, while the expected “drastic” increases in oil and gas prices would further dim growth prospects, at least temporarily. “The recovery process remains fragile amid these external risks,” the ministry said. Inflation in February stood at 1.9 percent. 

An analysis by consumer magazine Finanztip found that prices for electricity and gas contracts for new customers already increased following the start of the Iran war. Electricity prices rose by five percent and gas prices by as much as twelve percent in new contracts within the past three weeks, Finanztip said. “This is an extraordinarily sharp increase,” said the magazine’s energy expert Benjamin Weigl.