European Union officials have warned that oil and gas prices are likely to remain high through at least 2027 as ongoing tensions linked to the Iran conflict continue to pressure global energy markets, inflation levels and economic growth across the region.
The warning was issued on Friday following a meeting of eurozone finance ministers in Cyprus, where senior policymakers discussed the economic impact of sustained volatility in global energy markets.
Valdis Dombrovskis said rising energy costs are now expected to push inflation within the euro area to about 3.1 per cent this year, while inflation projections for 2027 were placed at roughly 2.4 per cent.
The revised outlook represents a notable increase from earlier forecasts, reflecting mounting concerns over the long-term economic effects of higher oil and gas prices.
According to EU officials, the concern extends beyond fuel costs alone, with policymakers warning that sustained energy inflation could gradually spread into transportation, manufacturing, food supply and other sectors of the economy.
Dombrovskis noted that rising energy costs were increasingly feeding into broader economic activity, creating additional inflationary pressure across multiple industries.
Christine Lagarde also cautioned that even if tensions in the Middle East ease in the near term, the economic consequences of supply disruptions could persist for years.
European policymakers said the region was still recovering from the energy shock triggered by the Russia-Ukraine conflict before the latest disruption added fresh pressure to energy markets.
The renewed market instability has further widened Europe’s energy cost gap compared to other major economies, according to officials and analysts familiar with the discussions.
Data referenced during the meeting showed that electricity prices across parts of Europe were already significantly above levels seen in the United States and China before the latest Middle East tensions intensified.
Officials warned that persistently high power costs were increasingly affecting industrial competitiveness, manufacturing activity and investment across Europe.
Analysts also noted that elevated electricity prices and grid constraints have become major challenges for sectors requiring large-scale energy consumption, including artificial intelligence infrastructure and data centre development.
The latest outlook reflects growing concern among European policymakers that prolonged energy market instability could continue weighing on economic expansion and consumer prices over the medium term.