Rising oil prices driven by the Iran conflict could sharply slow German growth.
In a simulation released Thursday by the Institute of German Economics (IW), a rise to US $150 per barrel would cut Germany’s GDP by 0.5 % in 2026 and 1.3 % in 2027, translating into a loss of more than €80 billion over the two years. Even a smaller jump to US $100 would have noticeable effects: the economy would shrink by 0.3 % in 2026 and 0.6 % in 2027, amounting to roughly €40 billion in lost output.
Inflation would also climb. With oil at US $100, consumer prices would be about 0.8 % higher in 2026 and 1.0 % higher in 2027. At US $150, the increases would reach 1.6 % and 1.9 % respectively, because higher energy costs raise transport, heating, production and the price of many intermediate goods, and these effects ripple through the supply chain to end‑user prices.
Although Iran itself plays only a minor role in German trade, its conflict creates indirect risks for Germany’s export‑oriented economy. Besides higher energy prices, the IW points to potential disturbances in global financial markets, interruptions in worldwide supply chains, and fragmentation of the world economy. “Disruptions on the scale of the 1970s oil crises are not currently expected” said Galina Kolev‑Schaefer of the IW, adding that every price rise and every disruption in global trade sharply erodes German competitiveness.
How severe the consequences will be depends on how far the conflict spreads, how long it persists, and how much the Strait of Hormuz is affected as the key routing point for crude oil.
To assess these impacts, the IW ran simulations with Oxford Economics’ Global Economic Model. The base case assumed oil at US $60 per barrel for 2026 and 2027, while two alternative scenarios, beginning in March 2026, assumed US $100 and US $150 respectively. The models incorporated only the economic adjustments to the oil‑price rise; effects from increased geopolitical uncertainty or higher gas prices are captured only indirectly.