Oil price surge threatens Germany with $46 billion economic hit, warns IW

Thursday 05 March 2026 - 13:50

By: Dakir Madiha

Oil price surge threatens Germany with $46 billion economic hit, warns IW

Rising oil prices driven by escalating tensions in the Middle East are sending shockwaves through global economies, raising concerns about slower growth, higher inflation, and tighter monetary policy if crude prices remain elevated. Governments and central banks from Europe to Asia are confronting mounting energy costs and narrowing policy options.

Germany could face a significant economic impact if oil prices climb further. The German Economic Institute, known as IW, warned that if Brent crude reaches $100 per barrel, the country’s economy could lose about 0.3 percent of gross domestic product in 2026 and 0.6 percent in 2027. The combined loss would amount to roughly €40 billion, or about $46.4 billion, over two years.

The institute said the damage could become far greater if prices rise to $150 per barrel. In that scenario, the loss could exceed €80 billion, with GDP declining by 0.5 percentage points in 2026 and 1.3 points the following year.

Although Germany’s direct trade with Iran has declined in recent years, the country remains vulnerable because of its continued reliance on imported energy. The warning comes at a fragile moment for the German economy, which has recorded no growth for two consecutive years. Before the latest geopolitical tensions, IW projected economic expansion of only 0.9 percent for 2026.

The pressure is not limited to Europe. Emerging economies that depend heavily on imported oil are also facing rising financial strain. India, which imports roughly half of its crude oil from the Middle East through the Strait of Hormuz, could see its annual import bill increase by $13 billion to $14 billion for every $10 rise in oil prices, according to ratings agency ICRA.

India’s current account deficit has already widened to $13.2 billion during the October to December 2025 quarter, according to data from the Reserve Bank of India. Higher crude prices and slowing exports linked to US tariffs have weighed on the country’s trade balance.

Malaysia is also feeling the effects of higher energy costs. The government recently increased the price of unsubsidized RON95 gasoline by eight sen to 2.67 ringgit per liter for the week of March 5 to March 11. The move marked the second consecutive weekly increase under the country’s automatic fuel pricing system. Analysts warn that if Brent crude remains above $90 to $95 per barrel, Malaysia’s fuel subsidy burden could rise significantly.

The surge in oil prices is also reshaping expectations for global monetary policy. Market pricing for interest rate cuts by the US Federal Reserve in 2026 has dropped sharply. The probability of three rate cuts has fallen from nearly 50 percent to about 20 percent in the swaps market.

Expectations for policy easing by the European Central Bank have also been scaled back. Markets now anticipate only a modest reduction of around five basis points.

Goldman Sachs estimates that a sustained 10 percent increase in oil prices could push the US consumer price index up by about 28 basis points. Federal Reserve officials including Kansas City Fed President Jeff Schmid and Boston Fed President Susan Collins have cautioned that inflation remains too high to justify rate cuts in the near term.

Despite these risks, analysts note that the current situation differs from past oil crises. Global inventories remain relatively strong, energy supply sources are more diversified, and average forecasts for Brent crude in 2026 remain within a range of $74 to $82 per barrel.