Europe’s oil and gas markets may stay priced higher than before the Iran war well into 2027, EU officials warned Friday, linking the outlook to inflation pressures they say will persist even if the Middle East conflict ends sooner.
Speaking after a meeting of the 21-member eurozone finance ministers in Brussels, European Economy Commissioner Valdis Dombrovskis said the energy shock remains a central driver of prices across the broader economy. He said the EU’s inflation forecast for this year rises to 3.1%, with inflation expected to ease to 2.4% in 2027—both forecasts affected by the higher energy-price environment, he said.
Dombrovskis also described the transmission of that energy-driven inflation into other sectors of the economy. “We expect that this energy inflation will gradually also trickle down to different sectors of the economy,” he said, referring to how the higher energy costs feed through as the adjustment takes hold.
European Central Bank President Christine Lagarde said that even if the conflict in the Middle East ends immediately, the aftereffects would continue to influence price levels. “Lagging effects” would keep inflation pressure in place, Lagarde said, characterizing the mechanism as delayed impacts from the earlier energy price shock.
Lagarde added that policymakers should plan for higher price levels by the end of the crisis. “And it’s probably a fact that price levels will be higher at the end of this crisis, when we see the end of the crisis,” she said, while reiterating the ECB’s commitment to maintain price stability at 2%.
On interest-rate expectations, Lagarde did not offer an indication that the ECB would immediately raise its benchmark rates to respond to the inflation outlook. She said the ECB would stay focused on the appropriate policy response using a “data-dependent and meeting-by-meeting approach” to deliver on its medium-term 2% target.
Lagarde also pointed to the EU’s planning for possible demand disruptions in energy supply. She said the ECB would pay close attention to the aftereffects of the initial economic shock and pointed to “how much oil the EU holds in reserve” as a factor in responding to possible shifts in demand.
Eurogroup President Kyriakos Pierrakakis tied the inflation and energy outlook to geopolitical risk affecting shipping and supply routes. He said for the EU, an end to the crisis would mean a return to free navigation through the Strait of Hormuz without tolls—adding that the strait carries roughly a fifth of the world’s oil and gas.
Pierrakakis also discussed growth expectations alongside the inflation picture, saying eurozone economic growth would reach 0.9% this year and 1.2% in 2027. He characterized those figures as below earlier forecasts “but clearly far from a recession scenario,” after the eurozone finance ministers meeting.
For now, the officials’ message was that energy prices—used to measure the direct cost of oil and gas—are likely to remain elevated compared with the pre-Iran war period, and that the broader pricing effects could extend well beyond any short-term improvement in conflict conditions.