Prolonged Iran war could shock European economies, EBRD says

The European Bank for Reconstruction and Development warned a prolonged war involving Iran would slow growth, raise inflation and could trigger a major economic shock across Europe as higher energy prices ripple through global markets. President Odile Renaud‑Basso cautioned the effects would be concentrated in countries where the bank operates if the conflict continues or intensifies.

Renaud‑Basso made the remarks after talks between U.S. and Iranian officials failed to produce a lasting accord and with a two‑week ceasefire due to expire on April 21. The conflict, which began in late February, effectively closed the Strait of Hormuz and disrupted about 20% of global oil and gas shipments. Supply interruptions and strikes on regional energy infrastructure have pushed fuel prices higher and prompted governments to respond with subsidies and tax measures.

The EBRD estimates that if oil prices settle near $100 per barrel, growth in countries where it is active would fall by about 0.4 percentage points and inflation would rise by roughly 1.5 percentage points. Renaud‑Basso warned: “If the Strait of Hormuz remains blocked for a very long period of time, if there is more destruction of production capacities in the Gulf … then the economic impact is likely to be much more serious.”

Founded in the early 1990s to support the transition of former Eastern Bloc states, the EBRD now operates in more than 30 countries across Europe, Asia and Africa. The bank said it intends to allocate €5 billion for investments in nations most affected by the conflict, naming countries from Egypt to Armenia, and it stands ready to support other economies in its footprint should conditions deteriorate.

European Commission President Ursula von der Leyen announced plans to propose eased state aid rules by the end of the month and outlined a toolkit of measures to help member states manage higher energy costs. She noted the EU’s energy bill has risen by €22 billion since the start of the conflict. The toolkit will include filling gas storage, temporary tax cuts, demand‑reduction measures and efforts to upgrade and expand the electricity grid.

Renaud‑Basso also highlighted that many EU governments have less fiscal space than during the COVID‑19 pandemic or after Russia’s 2022 invasion of Ukraine, limiting their capacity to offset rising energy costs. The EBRD warned that if diplomatic efforts collapse and fighting expands, the economic fallout could widen and deepen across the region, affecting growth, inflation and public finances in EU member states and other countries where the bank operates.