Following attacks by the United States and Israel, Iran has retaliated with widespread strikes targeting military and civilian sites in neighboring countries. Iran is also preventing maritime traffic near its coastline. The Strait of Hormuz, a critical chokepoint in the Persian Gulf through which 20% of the world’s traded oil passes daily, is effectively blocked.
Oil prices surged immediately after the attacks, and gasoline and diesel prices have spiked at German gas stations. According to reports, regular gasoline temporarily reached €2.50 per liter in some regions. The average diesel price is now slightly above €2.00, a 30-cent increase since the attacks on Iran.
Rising Energy Prices Pose Immediate Burden
Even more extreme price increases have been observed for natural gas following Iranian drone attacks on liquefied natural gas (LNG) facilities in Qatar, which led to a production halt. Germany does not directly import LNG from Qatar. Its supply sources are diversified, with a significant amount of gas also delivered via Norwegian pipelines. However, the European wholesale market, which is based on the balance between available international supply and current and future demand, is the key price determinant.
The increase in energy prices impacts not only households but also industry, which faces higher production costs. Energy-intensive sectors such as chemicals, steel, glass, and paper are particularly affected, as are the automotive and mechanical engineering industries.
Shock for Friedrich Merz’s Government
The US-Israeli war against Iran highlights the vulnerability of highly industrialized economies for Germany, particularly during a period of global crisis. German economists share this view. Veronika Grimm, one of five experts advising the German government on economic matters, warns of the risk of rising inflation and increased uncertainty weighing on investment. “We must prepare for a prolonged period of increased uncertainty,” she told the German press.
Concern is growing in Germany. A coalition formed by the conservative CDU/CSU and the Social Democrats (SPD) has been in power for ten months. Chancellor Friedrich Merz (CDU) had promised during his election campaign and upon taking office that revitalizing the German economy would be his top priority. However, a recovery has yet to materialize. The slight growth Germany experienced earlier this year could be erased by the war in Iran.
Energy prices in Germany have already risen sharply since the Russian invasion of Ukraine. Further price increases, supply chain disruptions, and increased global uncertainty are weighing heavily on the German economy.
In addition to the energy crisis, the war with Iran is exacerbating tensions, particularly in the transport sector. German shipping companies are being forced to take lengthy detours through the Persian Gulf, disrupting global supply chains and compromising supply security. Shipping insurance premiums are rising, as is the price of fuel. Airspace over Gulf countries is partially closed, forcing airlines to significantly alter their routes, lengthening travel times and increasing fuel costs.
Government Response
Each day of rising energy prices increases the risk of renewed inflation, as companies are forced to pass these costs on to consumers by increasing the price of their products.
While policymakers acknowledge the problems, their response has been muted so far. Minister for Economic Affairs and Energy, Katherina Reiche, has established a crisis team to analyze the situation daily and develop measures. The goal is to monitor price spikes, ensure security of supply, and assess the impact on businesses. This initiative has also been the subject of satire on social media.
“We are continuously evaluating and monitoring the situation,” government spokesman Steffen Meyer assured reporters on March 6, 2026. A spokesman for the Ministry of Economic Affairs added that the government supports measures to increase competition and transparency in the oil sector. It is still too early to estimate the economic consequences of the conflict in the Middle East, the spokesman said, but “the risks are obvious.”
