Middle East oil shock could cut euro-area growth by 0.4 percentage points in first year: ECB

The oil price shock triggered by the war in the Middle East could reduce euro-area GDP growth by around 0.4 percentage points over the first year following the shock, according to a European Central Bank (ECB) study released on Wednesday.

Since the outbreak of the war in late February, disruptions to oil flows through the Strait of Hormuz and reduced oil supply from the Middle East have pushed crude prices sharply higher, said the study.

It added that the increase in oil prices triggered by the current shock has so far been larger than that observed after the Russia-Ukraine conflict in 2022, although it remains smaller than the rise seen during the Gulf War in the early 1990s.

The ECB said higher oil prices are likely to weigh on the euro-area economy through rising production costs, lower household purchasing power, weaker global demand and heightened uncertainty.

Based on historical evidence, the ECB estimated that a geopolitical oil supply shock that raises real oil prices by 10 percent could reduce euro-area GDP growth by around 0.2 to 0.3 percentage points in each of the three years following the shock.

The study found that the impact on investment is likely to be more pronounced than that on private consumption. According to the ECB, heightened geopolitical uncertainty may prompt firms to delay expansion plans, equipment purchases and hiring decisions, dampening investment activity and amplifying the impact on economic growth.

The ECB noted that the euro area's dependence on oil has declined over time, but the response of investment to geopolitical oil supply shocks appears to have remained broadly stable.

The study cautioned that the overall impact of the current shock remains highly uncertain and will depend on the magnitude and persistence of the oil price increase. A prolonged period of elevated oil prices, broader supply-chain disruptions or spillovers into gas markets could further intensify downward pressure on euro-area growth.

Middle East oil shock could cut euro-area growth by 0.4 percentage points in first year: ECB

China's top diplomat Wang Yi cited four lessons from the U.S.-Israel-Iran conflict for all parties, foreign ministry spokesman Guo Jiakun said at a press briefing in Beijing on Wednesday.

Guo made the remarks in response to a media query about Wang having just attended the 16th Meeting of BRICS National Security Advisors and High Representatives on National Security in India.

From June 22 to 23, Wang, a member of the Political Bureau of the Communist Party of China Central Committee and director of the Office of the Central Commission for Foreign Affairs, attended the meeting in New Delhi.

The meeting was held against the backdrop of the U.S.-Israel-Iran conflict giving way to dialogue, said the spokesman.

"Director Wang Yi said in the meeting that the hundred-day-long conflict has dealt a serious blow to the region and beyond, from which four lessons can be drawn: the importance of safeguarding international rules, respecting national sovereignty, establishing a new vision of security, and understanding the new forms of war," Guo said.

China's top diplomat cites four lessons from U.S.-Israel-Iran conflict: spokesman