Consequences of the War with Iran

“Downward Spiral”: Three Scenarios for the Economy

Economists’ forecasts for Austria have recently deteriorated significantly.(Bild: Krone KREATIV/stock.adobe.com)

The situation is serious, and the outlook is completely uncertain. The closure of the Strait of Hormuz due to the Iran War is causing oil and gas prices to skyrocket. Stefan Bruckbauer, chief economist at Unicredit Bank Austria, outlines three possible paths for the domestic economy—depending on how the conflict unfolds.

Uncertainty is at an all-time high. One of the most important trade routes for oil has been blocked for weeks, and the consequences for Austrian industry, people’s wallets, and inflation are massive. “It all depends on how long the blockade lasts,” says Bank Austria Chief Economist Stefan Bruckbauer.

In his analysis, the top economist compares three specific scenarios: the old (now outdated) peace scenario, the new baseline scenario, and a risk scenario in the event of a prolonged conflict between the U.S. and Iran.

Scenario 1: Life as we knew it—now just a theory
Back in February 2026, Bank Austria’s forecasts still assumed a more or less “ideal world.” Bruckbauer anticipated an annual average oil price of around $65 per barrel and affordable natural gas. The result: moderate inflation (1.9 percent) in Austria and noticeable economic growth of one percent. “We no longer believe in this scenario,” says Bruckbauer. That ship has sailed.

Economists’ forecasts for Austria have recently deteriorated significantly.(Bild: Krone KREATIV/stock.adobe.com)

Scenario 2: The Base Scenario – Our Current Reality
This is the forecast Bank Austria is currently working with. The conflict continues for a while, but it does not escalate, and there are occasional periods of de-escalation.

• Oil price (annual average): approx. $91 per barrel

• Gas price: approx. 51 euros per megawatt-hour

• Inflation in Austria: rises to 3.0 percent on an annual average in 2026

• Economic growth (GDP): down to just 0.8 percent

“Inflation is thus more than one percent higher than originally assumed, and growth is slumping by 0.2 percentage points,” Bruckbauer calculates. The good news: There is no threat of a recession like in 2023 and 2024, and energy prices are still far from the horrendous levels of 2023.

Stefan Bruckbauer, chief economist at UniCredit Bank Austria, does not believe that the two percent annual average inflation targeted by policymakers is still achievable in 2026.(Bild: Barbara Wirl)

Scenario 3: The Risk Scenario – If the War Escalates
The scenario that strikes fear into the hearts of businesses and consumers: The conflict spreads, and the Strait of Hormuz remains closed for at least the rest of this year.

• Oil price: skyrockets to $116 per barrel

• Gas price: skyrockets to 83 euros per megawatt-hour

• Inflation: climbs to 3.9 percent—with peaks above 4 percent. For energy from abroad alone, we would suddenly have to pay 13 billion euros—four billion euros more than in the other scenarios.

• Growth: collapses almost entirely to just 0.4 percent—effectively stagnation

“It wouldn’t be the end of the world like in 2022 with nine percent inflation, but it would feel very painful for people,” says Bruckbauer. Particularly devastating: purchasing power for daily expenses like groceries and gas would then still be significantly below 2019 levels.

The big unknown: the duration of the conflict
A single question is decisive for all three scenarios: When will the Strait of Hormuz reopen? If a quick agreement is reached after all, oil and gas prices could fall sooner—then even one percent growth in Austria would be possible. However, Bruckbauer currently considers the “two percent inflation” for 2026, often cited by politicians, to be “almost out of the question.”

His conclusion: “We remain cautiously optimistic, but the risks clearly point downward.” If the war drags on, things will get really tight for Austria’s economy.