The EU warns that the Iran conflict could push inflation rates above 3%.

The European Union warns that if the Middle East war causes Brent crude oil prices to remain at around $100 per barrel and gasoline prices stay elevated for a longer period, the inflation rate could exceed 3%. In that scenario, economic growth in 2026 would also be hit. According to people familiar with the matter, the EU Commission’s trade commissioner, Valdis Dombrovskis, told finance ministers in EU member states last week that the economic growth rate could be lower by as much as 0.4 percentage points than the 1.4% forecast made at the end of last year. In addition to oil prices, the scenario also assumes that European natural gas prices will stay at about 75 euros per megawatt-hour for the rest of this year. This means that the inflation rate in 2026 would be 0.7–1 percentage points higher than the previously forecast 2.1%. A significant rise in inflation could prompt the European Central Bank to raise interest rates in response, and traders have already increased their bets that this will happen this year. The ECB’s next decision is on March 19, but it is not expected to raise rates then.