European development bank cuts growth outlook as war hits Iraq exports

The European Bank for Reconstruction and Development (EBRD) has lowered its growth outlook for 2026, with the forecast dropping to 2.5% from the previous estimate of 3.4%. The decline is primarily attributed to a deteriorating outlook in Iraq, which is experiencing a contraction in its economy by 12% this year. Iraq's economy relies heavily on oil exports, accounting for nearly 90% of its budget revenues, making it particularly vulnerable to disruptions in the oil industry.

The EBRD chief economist, Beata Javorcik, explained that the strategic Strait of Hormuz has been blocked since the start of the US-Iran conflict in February, leading to export disruptions. Iraq's economy is heavily dependent on oil, and higher oil and gas prices have negatively impacted growth across the bank's monitored economies.

Additionally, the war in Ukraine, attacks on energy infrastructure, and drought conditions in Europe have also contributed to the slowdown. The EBRD's forecasts assume oil prices will remain between $80 and $100 per barrel, but higher prices could further slow economic growth. Currently, Brent crude is trading around $100 per barrel following a recent escalation between the US and Iran.