European development bank cuts growth outlook as war hits Iraq exports

The European Bank for Reconstruction and Development cut its growth forecasts Thursday, as the Middle East war drives an energy shock that is hitting Iraq’s oil-dependent economy particularly hard.

The EBRD, founded to help former Soviet bloc nations embrace free market economies before extending its reach to the Middle East and Africa, now expects growth across its regions to slow to 2.5% in 2026, down from 3.4% in 2025.

The forecast is 0.6 percentage points lower than the EBRD’s previous estimate in June, largely due to a sharp deterioration in Iraq’s outlook.

Iraq’s economy is projected to contract by 12% this year, with the risk of a deeper downturn if export disruptions persist through the end of the year.

“The problem in Iraq is disruption to exports,” EBRD chief economist Beata Javorcik told AFP, as the strategic Strait of Hormuz has been choked off since the outbreak of the US-Iran conflict in late February.

Iraq is hugely dependent on oil exports, which make up about 90% of its budget revenues.

Higher oil and gas prices were the main factor weighing on growth across the economies monitored by the London-based bank.

The war in Ukraine, including attacks on energy infrastructure, and drought conditions across parts of Europe have also weighed on growth.

“In Europe, record low water levels in the Danube and Rhine weighed on shipment of industrial goods and energy generation, cutting output from hydropower and nuclear plants by a third,” the bank said in its report.

The bank’s forecasts assume oil prices remain between US$80 and US$100 a barrel, but higher prices could further slow economic growth.

Brent crude, the international benchmark, has rebounded since a fresh flare-up between the US and Iran six months into the war to trade around US$100 a barrel.