The German Economic Institute (IW) revealed in its latest forecasts, released today, a bleak scenario for Europe's largest economy, indicating that Germany could suffer losses of up to €40 billion ($46.4 billion) over the next two years. These warnings come against the backdrop of escalating geopolitical tensions related to Iran, which threaten to ignite global oil prices and derail the fragile economic recovery.
Scenarios for rising oil prices and their direct impact
The institute explained in its detailed report that the greatest risk does not lie in direct trade relations between Berlin and Tehran, which have declined significantly in recent years due to sanctions, but rather in the "energy price shock." According to the economic models presented by the institute, a rise in the price of Brent crude to $100 per barrel would cost the German economy a contraction of 0.3% of GDP in 2026, rising to 0.6% in 2027.
In a more pessimistic scenario, experts warned that if oil prices reach $150 a barrel, it will lead to catastrophic losses exceeding 80 billion euros, with GDP declining by 1.3% in 2027, meaning the country will enter a phase of actual recession and the purchasing power of citizens and companies alike will erode.
General context: The vulnerability of the German economy to energy shocks
To understand the depth of this crisis, one must consider Germany's historical and economic background. The German economic model relies heavily on heavy industry and exports, both energy-intensive sectors. Since the outbreak of the Russian-Ukrainian war, Germany has lost its advantage of cheap gas, making it highly vulnerable to any fluctuations in global energy markets. Any escalation in the Middle East, particularly concerning Iran and the Strait of Hormuz, immediately raises concerns about global oil and gas supplies, driving up production costs for German factories already struggling to regain their competitiveness.
Expected regional and international repercussions
The repercussions of this event extend far beyond Germany's borders. The rise in oil prices resulting from tensions with Iran will inevitably lead to a new wave of global inflation. For Europe, this complicates the European Central Bank's task of lowering interest rates, potentially prolonging tight monetary policies and stifling investment. Regionally, the report emphasizes that instability in the Middle East remains the "soft underbelly" of the global economy, as any disruption to oil supply chains would evoke memories of the energy crises of the 1970s, but with far more severe consequences given the interconnectedness of today's global economy.
The institute concluded its report by emphasizing that “the escalating conflict in the Middle East has serious implications for economic development,” calling on decision-makers in Berlin to hedge against these risks by diversifying energy sources and accelerating the transition to renewable energies to reduce dependence on imported fossil fuels.
