Business leaders warn Middle East crisis hitting German economy

Germany’s tentative economic recovery is facing renewed pressure as rising energy prices and supply chain disruptions linked to the Middle East conflict weigh on business confidence, according to David Deissner, head of the Stiftung Familienunternehmen und Politik.

Speaking about the outlook for Europe’s largest economy, Deissner said German industry is entering “a very difficult period,” with energy costs once again at the centre of concern. “It’s now really a very difficult period for us. Gas prices are very, very high. Oil prices are also rising. We have some of the highest energy prices here in Europe,” he said.

For companies already dealing with the long-term effects of the Ukraine war and persistently high energy costs, the latest geopolitical tensions risk intensifying existing challenges rather than creating entirely new ones. Deissner warned that rising costs are steadily eroding competitiveness across key sectors of the economy.

Germany has so far avoided immediate shortages by diversifying its energy sources, including increased supplies from Norway, imports of US liquefied natural gas, and the use of strategic reserves. However, this has not shielded the economy from global price increases.

“Of course, if prices spike globally in this highly interconnected energy market, that naturally affects German industry and consumer prices. We see the effect now at petrol stations for private consumers, but also for medium-sized businesses,” Deissner said.

He highlighted that energy-intensive sectors such as glass manufacturing, textiles and pharmaceuticals are particularly exposed to rising costs.

Economic forecasts point to potentially significant losses. According to the German Economic Institute, if oil prices remain around $100 per barrel, Germany could see its gross domestic product reduced by 0.3% in 2026 and 0.6% in 2027, equivalent to approximately €40 billion in losses over two years.

Beyond energy, the conflict is also disrupting global supply chains. Shipping routes have been affected, with vessels increasingly forced to take longer journeys around Africa, pushing up transport costs and delaying deliveries. Key transit routes such as the Strait of Hormuz are also critical for the movement of essential materials.

Deissner pointed to particular risks in supplies of aluminum, sulfur and helium. “Europe gets roughly 40% of its helium from Qatar, which is crucial for production here in Europe, particularly in Germany,” he said, noting the importance of the resource for medical technology, semiconductor manufacturing and other advanced industries.

Export-oriented German companies are already feeling the impact. “We already see now that the prices for shipping, for transport logistics are spiking,” Deissner said. “Ships have to be rerouted around Africa, and all these things are, of course, worrisome and drive up prices.”

He also warned of indirect effects through global manufacturing networks, particularly via China. “Because we do import quite a lot of high-tech components, intermediate products from China in order to make sure that our production here in Germany is running. So, this is something that we see with great concern,” he said.

Uncertainty is also affecting investment decisions, with projects in the Middle East and Gulf region largely paused. “We don’t know how this will develop,” Deissner said.

Despite government support measures, he argued that they offer only limited relief and that deeper structural reforms are needed. Small and medium-sized enterprises, which form the backbone of the German economy, are especially vulnerable.

“The crisis we see at the moment and the geopolitical shocks make it even more clear that Germany has to do its homework at home,” he said. He called for lower non-wage labor costs, reduced bureaucracy and faster tax relief for businesses.

“We have to become more dynamic, we have to do our domestic homework to stay competitive,” Deissner said. “It has become more important in these difficult times.”

While outlining these challenges, Deissner also expressed hope for a swift resolution to the conflict. “We hope this crisis will end very soon. We need a fast solution to prevent further harm. The costs for the economy, and for the rest of the world, are enormous due to the interdependence of our global markets.”

By Tamilla Hasanova