European policymakers are deeply concerned that the Iran war could deliver a fresh stagflation shock to the region’s economy. In a private briefing to EU finance ministers earlier this week, Economy Commissioner Valdis Dombrovskis reportedly warned that the conflict’s impact on energy markets could push inflation higher while simultaneously weighing on growth.
According to officials cited by Bloomberg, sustained Brent crude prices around $100 per barrel could lift EU inflation above 3% in 2026. That would mark a significant setback, reversing the disinflation progress achieved in 2025 as inflation gradually moved to the ECB’s 2% target.
The growth outlook could deteriorate at the same time. The European Commission estimates that economic expansion could be reduced by about 0.4 percentage points this year. With the bloc’s baseline forecast previously standing at just 1.4%, such a hit would meaningfully weaken Europe’s already fragile recovery.
Natural gas prices represent another key risk. Dombrovskis warned that gas could climb to around €75 per megawatt-hour by year-end. Such a move would likely feed directly into broader price pressures and could add another full percentage point to core inflation across the Eurozone economy.
Despite these warnings, the outlook still depends heavily on how long the conflict lasts. Dombrovskis emphasized that if the war is contained within a few weeks, inflation pressures could ease and growth forecasts might stabilize. But if the conflict drags on and Gulf energy infrastructure continues to face attacks, the EU may have to confront what he has already described publicly as a “stagflationary shock.”
