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Veronika Movchan, Garry Poluschkin

The economic implications of the Iran conflict for Ukraine

The closure of the Strait of Hormuz, caused by the conflict in Iran, has disrupted global oil and gas flows, with a noticeable effect on the global economy, including Ukraine’s. Being dependent on energy imports, Ukraine faces a significant negative impact from the increased energy prices. Additional energy import costs for the whole of 2026 are estimated at 0.9% of GDP. However, Ukraine’s exports are expected to benefit from higher global food prices. As a result, the net impact of the conflict on the current account is limited. At the same time, higher transport prices accelerated inflation.

In 2026, Ukraine has been impacted not only by the conflict in Iran but also by severe damage from continuous Russian attacks. For example, the damages caused by Russia increased the import demand and therefore severely worsened the forecast for net exports. As a result of both shocks, Ukraine’s 2026 economic growth estimates were revised downward by up to 1.0 percentage point compared with earlier forecasts.

  • Ukraine
NL 204 | Mai - June 2026
Macroeconomic Analyses and Forecasting
Background

Global economic effects of the conflict in Iran stem primarily from the closure of the Strait of Hormuz, through which, according to the International Monetary Fund (IMF, 2026a), about 25-30% of global oil and 20% of LNG pass. The ultimate impact will depend on the duration of the conflict, with longer conflicts causing a more lasting price increase and, in turn, more lasting effects. According to the IMF reference scenario, assuming a relatively short-lived war ending in 2026, the average price of crude oil (Brent) will increase by 21% yoy in 2026, leading to a stronger increase in oil products, while the average price of gas (Dutch TTF) will be up 23%. Also, global food prices increased, but by a much smaller magnitude.

Impact on the current account

The key direct impact of the Hormuz closure on Ukraine’s economy is through energy imports. Due to severe damage from Russian attacks on energy production facilities, Ukraine is highly dependent on imports, which account for 34% of total energy supply. The estimated share of imports in oil product supply in 2025 is 88%, natural gas 45%, and solid fossil fuel 24%. In 2025, imports of crude oil, petroleum products, and gas accounted for 4% of GDP, making Ukraine highly exposed to energy shocks. Based on the IMF reference scenario for energy price changes in 2026, Ukraine’s additional cost of energy imports is estimated at 0.9% of GDP for the year as a whole.

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Exports and current account balance

In exports, the shock will be transmitted through two channels. On the one hand, Ukraine is a net agro-food exporter, amounting to USD 23 bn, or 56% of total exports in 2025. As agro-food prices have risen amid the conflict in Iran, Ukraine’s additional exports are estimated at USD 1.2 bn (IMF, 2026b). On the other hand, the conflict adversely affects economic growth in Ukraine’s trade partners, thereby undermining their demand for Ukraine’s exports. Still, the next impact on exports is expected to be positive. As both exports and imports are expected to expand, the net effect depends on the relative magnitude of the changes. In the summer forecast, we (IER/GET; Betliy et al. 2026) did not change the forecast for the current account balance compared to our winter forecast, whereas the National Bank of Ukraine (NBU, 2026) revised its estimates downward.

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Inflation and monetary policy

The main component in Ukraine’s consumer basket is food, accounting for 42%. However, the impact on food prices remained insignificant. Prices for utility services, which account for 9%, are administered and therefore do not reflect the increase in global energy prices. The most significant impact, however, has been observed in transport prices, which grew by 19% yoy in April, compared with only 6% yoy in January. As a result, CPI growth has already picked up from 7.6% yoy in February to 7.9% in March and 8.6% in April, and is likely to accelerate further during the year, prompting upward revisions to forecasts.

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As a result, the NBU has halted the monetary policy easing cycle, which it had previously announced just before the Iran conflict in January.

Economic development

Ukraine’s economic development in 2026 has been shaped by two shocks: the severe damage inflicted by Russian attacks and the conflict in Iran. While the latter means higher energy prices, the destruction caused by Russia’s attacks has increased import demand, thereby deepening the negative contribution of net exports to real GDP and lowering their price elasticity.

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Conclusion and policy recommendations

The conflict in Iran has worsened the 2026 economic development projections for Ukraine, negatively adding to the economic shock inflicted by the continuous Russian attacks on infrastructure and production facilities. While the current account deficit is expected to be hardly affected by the Iran conflict, the conflict spills over into inflation. The publicly announced agreement between the US and Iran may hint at the end of the conflict, which aligns with the IMF assumption of a limited shock only in 2026, not in 2027.

To mitigate both shocks, the focus should be on reducing import dependence and increasing energy sector resilience, including through diversification of energy sources and decentralisation of energy supplies.

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This newsletter is based on the forthcoming Policy Briefing: ”Economic implications of the Iran conflict for Ukraine“

 

Sources

About the German Economic Team

The German Economic Team is financed by the Federal Ministry for Economic Affairs and Energy (BMWE). Berlin Economics is commissioned with the project implementation.