Economists are warning that the ongoing war in Iran could have severe consequences for the euro and the European economy if the conflict continues beyond the “four weeks” projected by former US President Donald Trump. The hostilities, which began at the end of February, have already triggered an energy price shock, affecting oil, petrol, diesel, and gas. Rising energy costs are hitting consumers and energy-intensive industries such as chemicals and steel, putting additional pressure on the German economy, which was already facing modest growth forecasts.

The euro, currently trading around $1.16, is under particular pressure. Economist Daniel Stelter warned that an extended conflict would further weaken a euro already affected by low growth, high debt, and political uncertainty. “Capital would flow into dollar investments considered safe,” he said. Carsten Brzeski, chief economist at ING Bank, added that if the conflict disrupts oil supplies through the Strait of Hormuz for several weeks, oil prices could exceed $100 per barrel, pushing the euro down to $1.10–$1.12 per dollar. This would represent a 5–8 percent drop, the lowest levels since the 2022–23 energy crisis triggered by the Ukraine war.

Such a decline would make holidays in the US more expensive for Europeans and increase the cost of imports such as oil, electronics, and raw materials. Stelter warned of even more severe scenarios, suggesting that the euro could temporarily fall below parity with the dollar, reaching $0.90–$0.95, if the war leads to prolonged regional instability.

Germany could face particularly serious economic consequences. Stelter said higher energy prices act like an additional tax, reducing consumption and investment. In a prolonged blockade scenario, Germany could fall into a deep recession, with the wider eurozone at risk of at least a technical recession. Extended disruptions would also strain bond markets and interest rates, potentially forcing the European Central Bank (ECB) to intervene more aggressively to prevent a debt crisis.

The war’s impact on global energy supplies could trigger an “energy black swan,” causing sudden shortages and price spikes that ripple through the global economy. German exports could collapse despite a weaker euro if higher energy prices reduce demand in major markets such as China, India, and the US.

The ECB faces a complex challenge: if the conflict is short-lived, it could lower interest rates to support growth. If the war drags on, inflationary pressures from energy prices would limit the bank’s ability to cut rates, leaving the euro under pressure and economic momentum stalled. Stelter said this scenario could lead to stagflation, with rising inflation and falling growth simultaneously.

A rapid end to hostilities within four to five weeks and minimal damage to critical energy infrastructure in Saudi Arabia and Qatar could help stabilize the euro. However, resistance from Iran’s leadership raises the risk of a prolonged conflict with serious economic implications for Europe.