When the US and Israel attacked Iran, the response was swift: Iran has effectively closed its coastal waters to shipping. The Strait of Hormuz — the chokepoint through which about 20% of the world’s oil trade flows daily — is now effectively blocked.
Oil prices jumped immediately after the strikes. Fuel at German pumps followed: in some regions premium gasoline reached around €2.50 ($2.89) per liter, and the national average diesel price rose to just over €2 — about €0.30 higher than before the attacks on Iran. Natural gas prices also spiked after Iran’s drone strikes on liquefied natural gas (LNG) facilities in Qatar halted production there. Germany does not import LNG directly from Qatar and gets much of its gas via Norwegian pipelines, but European wholesale prices reflect the global balance of supply and expected demand, so disruptions anywhere push prices across the continent.
Rising energy costs affect households and industry alike. Energy‑intensive sectors — chemicals, steel, glass, paper — are particularly exposed, but automotive and mechanical engineering firms also face higher production costs. The war in Iran has underscored how vulnerable advanced industrial economies remain in an era of overlapping global crises.
Veronika Grimm, one of five economists advising the German government, warned of renewed inflation and growing investment uncertainty, urging preparation for a prolonged period of higher uncertainty. Those concerns resonate in Berlin, where a coalition of the CDU/CSU and SPD has governed for ten months. Chancellor Friedrich Merz campaigned on reviving the economy, but the modest upturn Germany saw early in the year risks being reversed by renewed turmoil in the Middle East.
Energy prices have been on the rise since Russia’s invasion of Ukraine. Further increases, combined with fragile supply chains and global instability, are damaging for the German economy. Grimm and others call for stronger resilience through diversified supply chains, larger strategic reserves, coordinated European purchasing and accelerated expansion of domestic energy production. Many of these measures were urged after Russia cut gas supplies to Europe four years ago, but implementation has been difficult. After an unusually cold winter, Germany’s gas storage levels are low.
The conflict is also disrupting transport and aviation. Shipping companies now bypass the Persian Gulf, lengthening routes, causing delays and increasing costs for global supply chains. Insurance premiums for vessels are rising, as are fuel bills. Closures or restrictions on Gulf airspace force airlines to take longer routes, pushing up kerosene consumption and flight times.
Each day of rising energy costs increases the risk of higher inflation, as businesses pass on expenses to consumers. Since the 2022 energy crisis, higher energy-driven input costs have fed into consumer prices. Rising living costs reduce household purchasing power, weakening domestic demand, while making German exports less competitive — a critical problem for an export-oriented economy.
So far, the federal government’s response has been cautious. Economics and Energy Minister Katherina Reiche has established a task force to monitor developments daily and prepare possible interventions, tracking price spikes, supply‑chain security and business impacts. The move has drawn sarcasm on social media from critics who want faster action.
At the same time, the government benefits from high fuel prices: nearly half of pump prices go to the state in taxes and levies. Groups such as the Mobil in Deutschland motorists’ club accuse the government of “cashing in on motorists.”
The government points to earlier relief measures aimed at curbing energy costs — for example, lower electricity taxes for businesses and the abolition of certain levies — but critics say the Merz administration is promoting continued dependence on fossil fuels instead of accelerating the transition to renewables. Environmental and consumer groups note that the expansion of wind and solar has stalled and that recent legislation has slowed project rollouts. In the face of renewed global uncertainty, Germany looks less crisis‑proof than it should.
This article was originally written in German.