European development bank cuts growth outlook as war hits Iraq exports

The European Bank for Reconstruction and Development (EBRD) has lowered its growth outlook due to the impact of the Middle East conflict on Iraq's economy. The bank's forecast for global growth is now 2.5% in 2026, down 0.6 percentage points from its previous estimate in June. This decline is largely attributed to Iraq's deteriorating economic situation, with the country's economy expected to shrink by 12% this year.

Iraq's reliance on oil exports, which account for about 90% of its budget revenue, has been severely disrupted by the ongoing conflict. The strategic Strait of Hormuz has been blocked since late February, when the US-Iran conflict began. The bank's chief economist, Beata Javorcik, explained that Iraq's economic woes are primarily due to the disruption of oil and gas exports.

Higher oil and gas prices are also contributing to the slowdown in growth across the economies monitored by the EBRD. The bank's forecast assumes oil prices will remain between $80 and $100 per barrel, but higher prices could further dampen economic growth. In addition to the Iraq crisis, other factors such as the Ukraine war, attacks on energy infrastructure, and drought conditions in Europe have also weighed on economic growth.

The bank's projections take into account the current oil prices, but higher prices could exacerbate the slowdown in economic expansion.