Europe | The war is paying for in energy

Summary

The impact of the conflict in the Middle East on the European economy is being cushioned by energy diversification and greater global supply. But if the shock drags on, the economic deterioration could intensify quickly.

Key points

• Key points:
• Oil prices have not surged toward $150 or $200 per barrel thanks to reserves built up in Asia and increased production in the United States.
• Dependence on imports of diesel and kerosene from the Middle East directly affects transportation and a large part of the industrial sector.
• Short-term inflation expectations have risen, but long-term expectations remain stable amid expectations that the ECB will raise interest rates.
• Fiscal measures to contain prices distort the adjustment between demand and supply, making direct transfers to vulnerable households more economically efficient.
• A partial closure of the Strait of Hormuz, after strategic reserves are depleted, would create physical shortages and serious bottlenecks for European growth.

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