The escalating conflict in the Middle East could significantly raise the euro area’s energy import bill and weaken its trade balance, European Central Bank Vice-President Luis de Guindos said in an interview on March 20.
Highlighting the region’s dependence on external energy, De Guindos noted that the European Union imports nearly 60% of its energy needs, primarily oil and natural gas. Any disruption in key supply routes such as the Strait of Hormuz a critical global transit point for oil and liquefied natural gas poses a direct risk to Europe’s trade stability by driving up import costs.
According to ECB projections, energy prices are expected to rise in the short term. Under baseline assumptions, oil prices may reach around $90 per barrel and gas prices €50 per MWh in the second quarter of 2026 before easing. However, in more adverse scenarios, prices could spike significantly higher and remain elevated for longer periods, increasing pressure on Europe’s external accounts.
The trade impact is expected to be twofold. On one hand, higher energy prices will inflate the EU’s import bill, widening the trade deficit. On the other, increased production costs will reduce the competitiveness of European exports in global markets. The ECB has already revised down export growth projections, reflecting weaker external demand and rising cost pressures.
De Guindos cautioned that while domestic demand may soften due to reduced household purchasing power, export performance is likely to face more sustained challenges. Slower global trade growth, partly driven by similar energy shocks affecting other economies, is also expected to weigh on euro area exports.
The impact is likely to be more pronounced in major industrial economies such as Germany and Italy, which rely heavily on imported energy and gas-intensive manufacturing. Lower gas storage levels across Europe are further compounding the situation, forcing countries to rely on more expensive spot market purchases.
Despite these risks, the ECB does not anticipate a recession. Economic growth is expected to remain positive, although at a slower pace, while inflation may rise temporarily due to higher energy prices before stabilising.
On policy, De Guindos urged governments to adopt targeted fiscal measures to support vulnerable sectors rather than broad subsidies, amid already elevated public debt levels. He also stressed the need for Europe to strengthen its economic and trade resilience by investing in strategic sectors such as technology, artificial intelligence, and digital payments.
The developments could also have indirect implications for global trade partners, including India. With bilateral trade between India and the EU exceeding €120 billion annually, rising global energy prices may increase import costs for both sides, potentially affecting trade flows.
The ECB said it will continue to monitor energy markets, global trade conditions, and inflation trends closely as uncertainty around the geopolitical situation persists.