Growth remains robust despite the Iran conflict

Iran conflict weighs on global economic growth

The main transmission channel of the Iran conflict is the global increase in energy prices. The blockade of the Strait of Hormuz, through which around 25-30% of global oil and LNG trade is transported, according to the IMF, has led to a tightening of oil and gas supplies. As a result, prices for crude oil, petroleum products and gas have risen sharply and remain at elevated levels. Fertilizer prices have also increased. However, the short-term impact is expected to remain limited, as a large share of seasonal demand has already been covered. Consequently, global food prices have risen only moderately. Compared with the war in Ukraine, the Iranian conflict has not resulted in major disruptions to global food supplies. Nevertheless, the longer the conflict persists, the stronger and more structural its impact on the global economy is likely to become. In its reference scenario, which underpins the forecasts presented here, the IMF already expects global growth to decline by 0.5%. However, current developments are increasingly approaching the adverse scenario, which projects a decline of 1.5%.

Energy price shock has limited impact on Armenia

As the energy price shock is the main transmission channel, the economic impact of the Iran conflict depends heavily on a country’s energy mix. In Armenia, natural gas accounts for around 57% of primary energy consumption, while a further 16% comes from petroleum products. Nuclear energy (19%) and renewable energy sources (7%) are not directly affected by the energy price shock attributed to the Iran conflict. Since Armenia has no domestic production of oil or gas, all supplies must be imported. Even under a short conflict scenario (IMF assumption: average annual gas and oil prices increase by 23% and 21% yoy, respectively), import costs would rise significantly. However, Armenia has a long-term fixed-price contract for natural gas imports from Russia. Gas is supplied at a relatively low price of 165 USD/tcm, which has not been adjusted due to the conflict. We therefore assume that a large part of the energy price shock will not affect Armenia.

In 2025, Armenia’s imports of gas and petroleum products amounted to around USD 1.1 bn, equivalent to 3.7% of GDP. This share is significantly lower than in Moldova (9.2% of GDP), where gas is purchased at market prices. An illustrative scenario highlights the potential magnitude of the Iran conflict’s impact on Armenia: we estimate that total import costs would increase by around USD 131 m, equivalent to only 0.4% of GDP. This suggests that the overall impact of the energy price shock on Armenia is likely to remain limited.

Growth largely unaffected by the Iran conflict

The Armenian economy grew strongly by 7.2% yoy in 2025. Although growth momentum is expected to moderate somewhat in 2026, economic expansion is projected to remain robust at 5.3% yoy. Continued strong private consumption and the expanding services sector, particularly information and communication technologies (ICT), will remain the main drivers of growth. The impact of the Iran conflict is expected to be very limited. Compared with its pre-conflict forecast, the IMF has revised down its growth projection for Armenia only marginally by 0.2 pp.

However, current projections assume that the conflict will be short-lived. A prolonged conflict would likely result in stronger economic effects. In addition, Armenia’s economic relations with Russia have deteriorated significantly this year. Import bans introduced in May 2026 on Armenian food products (fish, vegetables, fruit and alcoholic beverages) as well as flowers remain in place and continue to weigh on Armenian exports.

Inflation is expected to increase slightly

Although global food prices have risen only moderately, the impact on Armenia is significant. This is mainly due to the high share of food products in the consumer basket, accounting for around 39% of household consumption expenditure. As a result of the Iran conflict, the IMF has increased its inflation forecast for Armenia by 0.6 pp. Consumer prices are therefore expected to rise by 3.6% in 2026.

Nevertheless, inflation remains within the Central Bank’s target range of 3% ± 1 pp and is therefore still under control. The policy rate currently stands at 6.5% per annum and has remained unchanged since December 2025.

The external sector remains resilient

The Armenian dram appreciated slightly in 2026, while foreign exchange reserves reached an all-time high of USD 5.9 bn in June 2026. As a result, import coverage increased to 4.8 months, providing a comfortable buffer against external shocks. The current account deficit is forecast to narrow to 6.0% of GDP. While the IMF has also revised its current account projection, this adjustment mainly reflects the fact that previous trade shocks were not incorporated into earlier forecasts.
Foreign trade has also remained largely unaffected by the Iran conflict. Due to the expected increase in energy prices, Armenia is likely to face only a moderate increase in import costs. On the export side, no positive effects are expected, as Armenia does not export goods that benefit from higher energy prices. In addition, weak global demand is expected to weigh on export performance. While Russia remains Armenia’s largest trading partner and is currently benefiting from the energy price shock, no additional demand for Armenian exports is expected. On the contrary, the current import restrictions on Armenian goods are putting further pressure on bilateral trade relations.

Outlook

Overall, the impact of the Iranian conflict on the Armenian economy has remained so far limited. This is mainly due to the fixed-price gas contract, which cushions most of the energy price shock. Nevertheless, the conflict is ongoing. If the blockade of the Strait of Hormuz persists for a longer period, the negative effects on Armenia’s economy are likely to exceed current estimates. In addition, the deterioration of economic relations with Russia represents another major downside risk to the outlook. Positive impulses could arise from further progress in negotiations on reopening the border with Türkiye.

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This newsletter is partly based on the 15th edition of the Armenia Economic Outlook and the Policy Briefing “Economic implications of the Iran conflict for Armenia” .

Sources

• Statistical Office of the Republic of Armenia (ARMSTAT) (2026a). External trade database by country [Data set]. Retrieved 24 April 2026, from https://armstat.am/en/?nid=717
• Statistical Office of the Republic of Armenia (ARMSTAT) (2026b). External trade database according to the Commodity Nomenclature at 4-digit level [Data set]. Retrieved 24 April 2026, from https://armstat.am/en/?nid=148
• International Monetary Fund (IMF) (2025). Republic of Armenia: 2025 Article IV Consultation, Sixth Review Under the Stand-By Arrangement, Request for Cancellation of the Current Stand-By Arrangement, and Request for a New Stand-By Arrangement – Press Release; Staff Report; and Statement by the Alternate Executive Director for the Republic of Armenia. Retrieved on 23 April 2026, from https://doi.org/10.5089/9798229032605.002
• International Monetary Fund (IMF) (2026). World Economic Outlook, April 2026 [Data set]. Retrieved 22 April 2026, from https://data.imf.org/en/datasets/IMF.RES:WEO