How Iran war could trigger Europe’s next cost-of-living crisis

The European Commission is set to present its latest economic forecast on Thursday, May 21, as the European Union prepares for the risk of a renewed cost-of-living crisis driven by the war in Iran and the blockade of the Strait of Hormuz.

In its previous bi-annual outlook released in November, the Commission had taken a cautiously optimistic view of the economic trajectory. At that time, the EU economy was projected to grow by 1.4% in 2026, while gross domestic product (GDP) in the 21-member eurozone was expected to increase by 1.2%.

Inflation projections in that forecast placed EU-wide price growth at 2.1%, with the eurozone slightly lower at 1.9%, both figures close to the EU’s target inflation rate of 2%.

However, more recent estimates, cited by dpa, suggest mounting inflationary pressure. In April, the International Monetary Fund forecast inflation in the EU at 2.8% for 2026, with the euro area expected to reach 2.6%.

The shifting outlook comes as global fossil fuel prices have surged in the wake of the war in Iran and Tehran’s blockade of the Strait of Hormuz, one of the world’s most critical shipping routes for energy supplies.

Reflecting growing concerns, Germany has already revised its national economic outlook. The government in Berlin has cut its 2026 GDP growth forecast to 0.5%, signalling a more subdued expansion for Europe’s largest economy.

By Tamilla Hasanova