The war in Iran is having an impact on energy and food prices, which experts say is not yet comparable to the crisis following Russia’s war of aggression on Ukraine. This is what the scientific advisory group of the Federal Ministry of Economics writes in its short report on the possible economic consequences of the military escalation in the Middle East Europewhich is available to ZEIT. “The consequences for the German and European economy depend primarily on the duration of the disruption to sea routes and energy supplies,” the consultants wrote in their statement.
That should happen too burden on households and companies in Europewrite the reviewers. In the short term, energy, fuel and Electricity prices climb. In Europe The inflation rate will then also risewhich makes consumption more expensive. According to the consultants, fertilizer prices are also likely to rise in the medium term. “Nitrogen fertilizers such as ammonia and urea are predominantly produced from natural gas,” the consultants write. In addition, the current war region is part of an important trade route for this. This means that food is also likely to become more expensive.
“This development hits Germany in a tense economic situation,” the consultants write. The aim must now be to act together in Europe. “The experiences from the Corona and energy crises show that coordinated European procurement and temporary stabilization instruments can be effective.”
International impact lower than 2022
The war has economic consequences, especially for energy. The escalation has an overall “significant impact on global oil and gas markets,” as around 20 percent of global oil and liquefied natural gas (LNG) supplies pass through the Strait of Hormuz, the consultants write. However, this is no longer passable due to the war with Iran. That’s why The price of fossil fuels has already risen. You could keep rising, Since the oil and gas producing states in the Middle East can only store a certain amount of raw materials – and have therefore already partially reduced funding.
Those affected are the report According to this, mainly Asian countriesas most of the oil delivered through the Strait of Hormuz is intended for Asian markets, especially China, which sources eleven percent of its oil imports from Iran. Pipelines from Saudi Arabia or the United Arab Emirates could only cushion the supply bottleneck to some extent. Experts therefore expected the price of oil to rise to up to $150 per barrel – so far it has already been around $100 at times. After Qatar stopped producing gas, the price here also rose sharply, temporarily reaching 60 euros per megawatt hour.
The long-term impact on global supply chains is also likely Germany in particular as an export-oriented economic nation. Rising energy prices mean higher costs for transporting products to other countries.
Europe is better prepared
At the same time, the advisory group states that the increase in energy supply prices is “far from comparable to the increases as a result “Russia’s 2022 war of aggression” against Ukraine. This is also because politics focuses on the economic effects of the war of aggression on the Ukraine responded. “Europe’s gas supply in particular is now much more diversified,” write the consultants. Nevertheless, there is a lack of a large number of long-term contracts for LNG supply because Europe does not want to commit to this fossil fuel in the long term.
In addition, the energy crisis is hitting the EU states more indirectly this time. “Unlike in 2022, a shortage will not affect Europe directly, but primarily Asian customers, as the majority of LNG from Qatar flows into these markets,” the report says. However, Europe could be affected by significant increases in energy prices as prices rose so generally.
According to the consultants, people in the USA are likely to be less affected, as the country produces gas itself, primarily for domestic use. But a “prolonged escalation in the area of the Strait of Hormuz would have a significant impact on the global gas market.” In general, however, the war puts a strain on international supply chains – and could also influence other conflicts, for example in Ukraine.
Politics should fill gas storage facilities and plan for the long term
Companies could react to the increased prices for fossil fuels themselves by cutting back on production or switching to other energy sources. However, since companies have had to do this since 2022, the options are no longer that great. The same applies to consumers: many households have already made savings since 2022 and cannot reduce their energy consumption any further.
According to the consultants, France is less affected by the crisis because the country can partially compensate for the loss of fossil fuels with nuclear energy. Spain is less affected because the country has switched more consistently to renewable energies.
The consultants advise politicians to stabilize the energy supply by filling the gas storage facilities and purchasing gas from various sources. Normally the storage tanks would be filled in the summer months because the price is lower due to lower consumption – but that could be different if the war continues this year. Politicians must therefore pay attention to this. But it is important: “A strategic gas reserve can only be implemented sensibly if for additional Storage capacities should be created.” Private gas storage facilities should not be affected by this.
The aim is long-term preparation
But energy prices should not be subsidized across the boardwrite the consultants. Increased prices at gas stations For example, they are not necessarily a sign that the energy price market is no longer functioning, which is why intervention would be counterproductive. Federal Minister of Economics Katherina Reiche (CDU) had announced that she wanted to have gasoline prices checked and limited price increases at gas stations. European emissions trading should not be affected despite the likely rising prices, as it has “established itself as a central instrument for the cost-efficient reduction of greenhouse gas emissions”.
Instead, the consultants recommend concluding long-term gas procurement contracts with suppliers. The possibilities for this would have to be created at the EU level – at the moment climate goals are hindering this EU on long-term contracts. It is also recommended to expand gas production in Germany and “to allow gas extraction through fracking, for example, and to seriously examine it in order to reduce dependence on foreign suppliers.” Europe as a whole must strengthen its “economic and energy policy resilience”.
Finally, the consultants write: “If there is a political change in Iran and this leads to a gradual lifting of sanctions, this could also open up considerable opportunities for the German and European economies.” The council includes the economist Veronika Grimm, the former economist Volker Wieland and the economists Justus Haucap and Stefan Kolev.