Iran War Could Drive German Inflation to Six Percent and Push Economy Into Fourth Recession

The head of economic forecasting at the RWI-Leibniz Institute, Torsten Schmidt, has warned of sharply rising inflation in Germany if the Iran war drags on. "In the event of a prolonged war, inflation could temporarily rise to six percent this year," Schmidt told the Rheinische Post ahead of its Friday edition. "At that point, economic growth is gone, Germany would slide into its fourth consecutive year of recession."

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What a Long War Would Mean for Energy Markets

"If the war lasts more than four weeks and Iran continues to destroy oil and gas infrastructure in the Gulf states, there will be real shortages on the world market," Schmidt said. "In that case, I also consider an oil price of 150 dollars per barrel to be possible." High oil prices, he added, would feed directly into consumer prices.

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Should the war come to an end by the close of the month, inflation would still rise, but not as sharply. "The inflation rate will climb to three percent in the summer, and for the full year we expect 2.6 percent," Schmidt said. Fuel prices would remain elevated, staying at around two euros per litre.

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A Second Front: Germany's Gas Storage Problem

The economist also raised concerns about Germany's already low gas storage levels. "Twenty percent capacity is very low," Schmidt warned. "I see the risk that we will not be able to fill the gas storage facilities before winter, especially if the Iran war lasts longer than expected."

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At current high prices, he noted, traders have little incentive to store gas. "With gas, we are quite literally playing with fire," Schmidt said, adding: "Establishing a strategic gas reserve, similar to what exists for oil, would be a sensible measure."

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How the War Has Already Disrupted Global Energy Supply

Since the Iran war began on February 28, the Strait of Hormuz, through which roughly one fifth of the world's oil and liquefied gas transport passes, has been effectively blocked by Iranian military forces. The strait, which sits between the Arabian Peninsula and Iran, is controlled by Tehran's Revolutionary Guards. The closure has sent oil and gas prices surging on global markets.

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