The Iran war dashed hopes of a gentle upswing this year: Could a trend reversal now come as a result of the agreement between the USA and Iran? Many thorny issues still need to be negotiated by the conflicting parties, but for now a possible end to the war seems to be in sight. This means that supplies of crude oil, liquid gas and fertilizer from the Gulf are likely to start up again quickly, and prices are likely to fall in the medium term – which in turn should support the economy.
The stock exchanges in Asia are already celebrating the agreement today, and the price of oil fell significantly. US President Donald Trump is optimistic – and, with regard to the blockade of oil transport through the Strait of Hormuz, declared: “Ships of the world, start your engines! Let the oil flow!”
The crisis resulting from the Iran war caught Germany off guard: in addition to higher prices, which are causing problems for many households, there was a renewed shortage of materials in industry. As a result, economists halved their economic forecasts.
How is an end to the war likely to affect the economy?
“An end to the war would have positive effects on the economy,” says economist Timo Wollmershäuser, head of economic research at the Munich Ifo Institute. “First, world market prices for crude oil and natural gas would fall, which would immediately reduce inflation rates and return consumer purchasing power.” According to the scientist’s assessment, capital market and loan interest rates would also fall because there would be no further increases in key interest rates.
But the effect would probably not be immediate. “The expansion of the supply of crude oil, natural gas and associated intermediate products from the Persian Gulf region to pre-war levels will probably take some time, as some production facilities are apparently damaged,” says Wollmershäuser. “Therefore, energy prices are unlikely to fall to pre-war levels immediately and supply chain problems could continue for some time.”
How will gasoline prices develop?
For the federal government, the rapid rise in fuel prices in particular caused political anger. Economics Minister Katherina Reiche (CDU), who actually rejected government intervention, came under pressure and finally agreed to relief measures for drivers that many economists consider to be of little use. Since April 1st, gas stations have only been allowed to increase their prices once a day, followed on May 1st by the fuel discount of almost 17 cents per liter, which is limited until the end of June.
“If an end to the Middle East war means that the Strait of Hormuz is freely navigable again and oil transport can run smoothly there, the oil price should also gradually fall,” says a spokesman for the ADAC in Munich. However, it will take some time until stable processes along the supply chains are established again. “Immediate reductions in fuel prices to pre-war levels are therefore not to be expected, especially since infrastructure has also been damaged or destroyed and cannot be rebuilt immediately.”
When will ships sail in the Strait of Hormuz again?
The US government and many experts believe that Iran has partially mined the Strait of Hormuz. It is not known how many explosive devices are actually lurking there – but the fear of mines alone is enough to paralyze shipping. Therefore, a mine clearance operation is first needed, for which European states, among others, have already made preparations. Only after its completion would a return to normal operations before the war be conceivable again.
In the meantime, the US military could increase its efforts to guide ships through the strait. Another problem is that after four and a half months of the Iran war, many ships are simply in the wrong place: hundreds are still stuck in the Persian Gulf, many are now sailing on other routes. A return to normal operations, with around 100 to 150 ships in the strait per day, is likely to take a while. The prerequisite for this is, of course, that the agreement between the USA and Iran actually holds and that there are no new hostilities.
How long does it take for supply chains to function again?
This depends not only on the end of the Iran war and shipping traffic in the Strait of Hormuz, but also on a conflict that has now largely disappeared from the headlines: “From a global perspective, the more important factor (for container shipping) is not the Hormuz crisis, but the crisis in the Red Sea,” says Danish shipping expert and consultant Lars Jensen.
Since the beginning of the Gaza War in autumn 2023, most international shipping companies have no longer had their container ships sail on the shortest sea route from East Asia to Europe through the Red Sea and the Suez Canal, but on the much longer route around the Cape of Good Hope at the southern tip of Africa.
In the Red Sea, the Iran-backed Houthi rebels are threatening shipping. Since circumnavigation of Africa involves a detour of many thousands of nautical miles and travel times that are up to two weeks longer, shipping capacity is limited and prices are high. “A solution to the Hormuz crisis could also set the stage for a possible solution to the Red Sea crisis,” says Jensen. “This in turn would free up shipping capacity on a large scale and result in a shift in the market from the current lack of capacity to oversupply.”
How would the stock markets react to an end to the war?
The Iran war has so far not had much impact on one sector of the global economy: the international stock markets. In the USA, the S&P500 – the leading index of the 500 largest listed companies – is higher than before the start of the war. The Frankfurt Dax was more severely affected and lost almost 3,000 points from the end of February to the end of March. But since then things have picked up significantly again, with some fluctuations.
If the war actually ends, the result would be lasting relief on the financial markets. According to DZ Bank analyst Birgit Henseler, it is primarily the large industrial groups that are driving growth on the Frankfurt Stock Exchange. In addition to the development surrounding the boom in artificial intelligence, large German companies continued to benefit from the federal government’s billion-dollar fiscal package.
When will the economy improve again?
The German economy should actually have grown moderately this year thanks to the federal government’s 500 billion euro debt package. After the start of the Iran war, the federal government halved its economic forecast to just 0.5 percent. The prospects for 2027 are also cautious. Economists expect gross domestic product to grow by 0.8 percent.
But apart from the Iran war, the German economy is suffering from fundamental structural problems, as both companies and economists have been criticizing for years: rising social security contributions, high energy prices and too much bureaucracy. If nothing changes, many economists believe there is no end to the stagnation in sight.