Goldman Sachs: Iran Conflict Tests Europe's Economy

The escalation of the conflict in Iran increases the risk of an energy shock for Europe, according to an analysis by Goldman Sachs. The American bank estimates that a 10% increase in oil and natural gas prices could reduce the Eurozone's real GDP by 0.2%.

The analysis emphasizes that European economies are vulnerable to a new energy shock, as most countries are net importers of oil and natural gas. Beyond energy, other channels, such as non-energy trade and banking interconnection with Iran, have limited impact.

Goldman Sachs quantifies the shock and estimates that a 10% increase in energy prices will boost headline inflation by 0.15% to 0.3% over four quarters, while core inflation will increase by 0.03% to 0.06%.

The pass-through of energy increases to final prices is not linear. The greater the increase in energy prices, the stronger the secondary impact on inflation.