The ongoing Iran War and the closure of the Strait of Hormuz are pushing oil prices higher, and a new study warns that Germany could face severe economic consequences if the trend persists.
The German Economic Institute (IW) has sounded the alarm over the potential damage to German economic output.
“If the price of oil were to rise to 150 U.S. dollars per barrel, the costs for the German economy would amount to 0.5 percent of gross domestic product in 2026 and 1.3 percent in 2027,” according to the institute’s economists.
“In absolute terms, this corresponds to a real loss of economic output of over 80 billion euros in two years.”
Oil is currently trading at between $76 and $82 per barrel on global markets. While the U.S. and Israel could gain control of the strait, there are fears that a closure could last for weeks or even months, according to the study.
The study shows that an even more modest but sustained rise to $100 per barrel would carry a significant price tag. At that level, Germany would forfeit 0.3 percent of economic output this year and 0.6 percent in 2027.
“Overall, this would be a loss of economic output of about 40 billion euros over two years,” write the authors.
A prolonged surge in oil prices would also feed through to consumer prices. Should oil reach $100, inflation would run approximately 0.8 percent higher in 2026 and 1.0 percent higher in 2027. At $150 per barrel, Germans could face consumer prices roughly 1.6 percent higher in 2026 and around 1.9 percent higher in 2027.
The institute noted that while the United States remains the world’s largest oil producer, the nations directly or indirectly caught up in the Iran conflict account for “almost a third of global oil production, with Saudi Arabia alone accounting for one-tenth.”
Despite Germany’s shift to renewables, the researchers were unambiguous about Germany’s ongoing reliance on fossil fuels, describing oil and natural gas as “indispensable” for the country. Germany’s industrial producers, including the chemical, machine tools, and automobile industries, have already suffered due to Germany’s high energy costs. Soaring prices for oil and natural gas could lead to unpredictable and disastrous scenarios.
“Despite declining oil intensity over the past decades, Germany still accounts for approximately two percent of global oil consumption.” For private households, spending on fuels and heating oil represents “around four percent of their consumption budget.”
In addition, many products in Germany rely on oil to make, including car tires, fertilizers, and cosmetics.
At this stage, however, it is difficult to predict what oil costing $150 a barrel or more would do to the global economy.
On Friday, Qatari Energy Minister Saad al-Kaabi told the Financial Times that the war could lead to a supply shock, with Gulf energy exporters cutting output to the point that oil reaches beyond $150.
“Everybody who has not called for force majeure we expect will do so in the next few days if this continues. All exporters in the Gulf region will have to call a force majeure,” Kaabi said. “If they don’t, they are at some point going to pay the liability for that legally, and that’s their choice.”
“This will bring down the economies of the world… if this war continues for a few weeks, GDP growth around the world will be impacted. Everybody’s energy price is going to go higher. There will be shortages of some products, and there will be a chain reaction of factories that cannot supply,” he said.
