UniCredit Bank Austria analysis
Iran war causes inflation to rise again in Austria
- Significant global rise in crude oil and gas prices following de facto blockade of the Strait of Hormuz
- The price of oil has risen by 55 per cent to date compared to the average price in the first two months of the year - the net price of diesel has risen by the same amount, while the price of premium petrol has risen slightly less
- In 2026, the rise in fuel prices could lead to an average additional burden for households with cars of EUR 80 for diesel drivers and EUR 30 for petrol car owners compared to the previous year
- We assume that the military operations against Iran will last a few weeks, after which the tensions and disruptions to energy supplies will subside
- Prices for crude oil and natural gas should gradually fall again from their recent highs as the markets ease
- The rise in energy prices is reversing the decline in inflation in Austria: We are raising our inflation forecast for 2026 from 1.9 per cent to 2.5 per cent
- At 2.2 per cent, inflation in 2027 could be 0.2 percentage points higher than previously assumed
- We are lowering our GDP forecast by 0.1 percentage points each to 0.9 per cent for 2026 and 1.4 per cent for 2027
"The escalation in the Middle East following the US and Israeli attack on Iran and the de facto closure of the Strait of Hormuz as well as Iran's counterattacks on the energy infrastructure in the region have triggered a significant rise in gas and crude oil prices on the global markets. While household energy prices will only react to the rise in gas prices with a time lag, prices for fuels at Austrian petrol stations have risen immediately, which means that inflation will also rise again in Austria from March," analyses UniCredit Bank Austria Chief Economist Stefan Bruckbauer.
It is difficult to reliably estimate the duration of the conflict, but it is in the interests of all parties involved to end the dispute as soon as possible. In addition to the obstruction of the transport of crude oil and liquefied natural gas through the Strait of Hormuz, through which around 20 per cent of global demand is transported, there is also a risk of aggravation due to attacks on or damage to energy production and loading facilities in the neighbouring countries, which could lead to even greater increases in energy prices.
"We assume that the military operations against Iran will last a few weeks and therefore remain within a manageable time frame. The political uncertainties and the disruption to the transport routes for fossil fuels should then subside noticeably. The price of oil and gas on the global markets should then gradually decline from the current highs," says Stefan Bruckbauer and adds: "Even in the favourable case of 'only' several weeks of conflict without further escalation, price distortions are still to be expected well into 2026."
The economists at UniCredit Bank Austria have raised their oil price forecast from USD 65 to USD 76 per barrel on average for 2026. Assuming restraint on both sides and active support from OPEC+, the price of crude oil should remain below USD 80 per barrel, even if temporary peaks such as those seen in recent days are to be expected. Given the current oversupply on the market, crude oil should actually be trading at around USD 60 per barrel or less, which indicates that the markets have already priced in a significant geopolitical risk premium before the start of the war. If the conflict does not escalate further and the most important energy facilities remain untouched, the oil price should fall back to around USD 70 per barrel by the end of 2026.
"Our TTF gas forecast for 2026 is an annual average of EUR 30 to 35 per megawatt hour. The risk of higher gas prices has increased even if the conflict ends relatively quickly, but this level should at least be achievable in the second half of the year. This is offset by the need to replenish the low storage levels, which currently stand at around 30 per cent in Europe, before the next winter. The significant increase in LNG supply that will come onto the market from the USA, Qatar and Canada should have a positive effect on the price trend," says UniCredit Bank Austria economist Walter Pudschedl.
Significant rise in petrol prices at the pumps
The rise in oil and gas prices will therefore only be temporary if developments are favourable, but it is already having an effect. Fuel prices in Austria have risen immediately. From an average of 1.51 and 1.48 euros for a litre of diesel and premium petrol respectively in the first two months of the year, fuel prices at the pumps have currently risen to 2.00 euros for diesel and 1.80 euros for premium. While the gross price increase is somewhat mitigated by the constant tax surcharges, the net prices have risen much more sharply.
"The world market price for crude oil has been trading at over 100 euros per barrel since the weekend, around 55 per cent above the average price for the first two months of the year. After the prices at the petrol pumps, especially for diesel, have always increased more than the price of crude oil in recent days, the current net prices for diesel largely reflect the rise in the price of crude oil. The prices for premium petrol have actually been raised slightly less, but petrol prices remain very volatile. The price difference between diesel and premium petrol at the pumps has risen from around 5 to 20 cents per litre," says Pudschedl.
The energy price increases have come at the worst possible time. At the start of the year, inflation had fallen to 2.0 per cent thanks to the dampening effects of energy prices on overall inflation. "We have raised our optimistic inflation forecast from an annual average of 1.9 per cent to 2.5 per cent for 2026, assuming a manageable timeframe for the conflict and no further escalations that would have a negative impact on energy prices. At 2.2 per cent, inflation is also expected to be slightly higher in 2027 than recently assumed," says Pudschedl.
The resurgence of inflation will also pose a risk to economic development. However, the current tensions should only lead to short-term and manageable mood swings that will affect consumption. In addition, a further reduction in the savings rate should almost compensate for this, meaning that only minor losses in growth are to be expected.
"Due to higher energy prices, inflation is also rising again, while the impact on economic growth should be moderate. We have lowered our GDP forecast for 2026 and 2027 by 0.1 percentage points each and now expect economic growth of 0.9 per cent for 2026 and 1.4 per cent for 2027," says Bruckbauer.
The rise in fuel prices will lead to an additional financial burden for Austrian households. "The rise in fuel prices will trigger additional costs in 2026. According to our oil price estimates, an average household with a diesel vehicle will have to spend EUR 80 more on fuel this year compared to the previous year. A household with a petrol car will only have to expect additional costs of around EUR 30 compared to the previous year due to lower average mileage and lower price increases over 2026," says Pudschedl.
Due to the higher average mileage, households in Carinthia, Burgenland, Lower Austria, Vorarlberg and Styria are likely to have an additional financial burden above the average. Assuming a manageable length of the conflict and no further escalation, the financial consequences therefore remain manageable. From today's perspective, calls for government intervention and tax relief appear to be excessive.
Enquiries:
UniCredit Bank Austria
Economics & Market Analysis Austria
Walter Pudschedl, Phone: +43 (0) 50505-41957;
e-mail: walter.pudschedl@unicreditgroup.at