European Union officials said Friday that oil and gas prices will remain above their levels before the Iran war until at least the end of 2027, delivering a sharp downgrade to the bloc’s economic outlook and warning that energy-driven inflation will spread to other goods.
Speaking after a meeting of eurozone finance ministers in Nicosia, Cyprus, EU Economy Commissioner Valdis Dombrovskis said higher energy prices are primarily responsible for pushing the EU’s inflation forecast to 3.1 percent for 2026 — a significant jump from the earlier forecast of 1.9 percent. The revision is the latest signal that the economic disruption from the conflict in the Middle East, which has repeatedly driven up oil and gas benchmarks since hostilities began, will take years to unwind.
Dombrovskis said the EU expects energy inflation to “gradually also trickle down to different sectors of the economy,” raising the prospect that the price pressures currently concentrated in fuel and power will broaden to food, transportation, and manufactured goods in the months ahead. The 2027 inflation forecast stands at 2.4 percent, still above the European Central Bank’s 2 percent target.
European Central Bank President Christine Lagarde told reporters that even if the conflict ended immediately, “lagging effects” would keep prices elevated. The assessment aligns with a growing body of official forecasts indicating that the Iran war’s supply disruption has embedded a persistent energy premium that will not dissipate quickly, unlike the sharp-but-brief oil spikes of previous crises.
MSI has tracked the widening economic impact of the Iran war across multiple sectors and geographies, with earlier articles documenting parallel inflationary pressures in the United States and the United Kingdom, as well as central banks’ decisions to pause interest rate cuts as the energy shock reshapes their policy outlooks. Lagarde’s remarks Friday reinforced the message that policymakers see limited room to ease monetary conditions while energy-driven inflation remains above target.