19-03-2026
The Economic Observatory at Francisco de Vitoria University (UFV) has analyzed the state of the economy in light of the conflict with Iran, examining the potential impact on the economy under various scenarios, while also proposing a series of measures to strengthen the Spanish economy both in response to this crisis and from a structural perspective.
The conflict with Iran is affecting the Strait of Hormuz and, consequently, commercial traffic—both oil and other goods essential to the global economy. Thus, the closure of the Strait of Hormuz is not merely a regional event; it is a systemic shock with a major impact on global trade, energy, and, consequently, economic growth.
The Strait of Hormuz is no ordinary waterway. Approximately one-fifth of the world’s oil consumption passes through it. It is, therefore, a critical artery of the global economic system. Blocking it almost automatically leads to a contraction in the effective supply of crude oil on international markets. And when the supply of an essential commodity is suddenly restricted, the result is well known: a significant rise in prices.
The primary transmission channel is, therefore, energy-related. A sharp rise in oil prices is passed on throughout the economy’s cost structure. Transportation—by sea, land, and air—becomes more expensive, driving up logistics costs for virtually every good. Energy-intensive industries see their margins eroded. Ultimately, consumers bear the brunt of the impact through inflation, especially in a context where central banks continue to inject abundant liquidity into the markets. This reduces household purchasing power and causes consumption to contract. It is, in essence, a decline in real income.
The second channel is international trade. Rising transportation costs and geopolitical uncertainty are causing a decline in trade volumes. Supply chains, which have already been under strain in recent years, are becoming fragmented once again. Companies are responding by delaying investments, building up inventories, or seeking alternative routes that are more costly and inefficient.
This gives rise to a significant effect: forced deglobalization. Not as a strategic decision, but as a defensive reaction to risk. This implies less specialization, lower efficiency, and, ultimately, lower potential growth.
The third channel is financial. Markets react with risk aversion. Premiums rise, investment falls, and capital flows into assets considered safe. For highly indebted economies—such as Spain’s—this is no small matter: it makes financing more expensive and reduces fiscal maneuvering room.
In Spain’s case, moreover, the impact is doubly sensitive. As a net energy importer, rising oil prices and the appreciation of the dollar—the currency in which most oil transactions are conducted—worsen the current account balance and put upward pressure on prices. And as a service-based economy dependent on consumption and tourism, it is particularly affected by the loss of real income among European households, which will reduce their purchases—Spain’s exports—and travel less to Spain, with a negative impact on the tourism sector, which is so important to the Spanish economy. This effect could be partially mitigated by the arrival of travelers who switch their destinations from the Middle East to Spain, although the loss of purchasing power among citizens in our main source markets for tourists still has a negative impact.
It is worth emphasizing a point that is often overlooked: these shocks are not symmetrical. They do not affect everyone equally, nor do they resolve themselves automatically. Countries with greater flexibility—those with less rigid labor markets and lighter regulatory burdens—tend to adapt better. Those that are more structurally rigid—as is the case with Spain—may find the impact intensified.
Accordingly, we start with a baseline growth scenario based on the government’s macroeconomic outlook, with estimated GDP growth of 2.24% and employment growth of 2.1% for 2026, and a GDP deflator of 2.1%.
Source: Compiled by the author based on official data from the Ministry of Economy
Based on this baseline scenario, we consider the following possible scenarios, depending on the duration of the conflict and the extent to which the various variables are affected:
- Scenario 1. Short war: inflation of 3% to 4%; oil prices steady for a month between $100 and $110; the conflict ends in late March or early April, without escalation
In this scenario of a short-lived war, without a significant deterioration in economic indicators, economic growth would slow to 2.06%—a drop of nearly two-tenths of a percentage point—and the employment rate would rise by 1.93%, compared with 2.1% in the baseline scenario. Here, the quarter-over-quarter growth of the IITR would remain flat, with no growth, by just one-hundredth of a percentage point, as can be seen in the annex at the end of the document for both quarter-over-quarter and year-over-year growth figures.
Source: Compiled by the author based on official data from the Ministry of Economy and the author’s own estimates of the impact
- Scenario 2. Protracted War: persistent inflation >4%; oil prices >$120; escalation or long-term impact due to the war.
In this scenario, in which the war drags on, with a significant rise in oil prices and persistent inflation above 4%, economic growth would be reduced to 1.49%, seven-tenths of a percentage point lower than in the baseline scenario, while employment would grow by 1.4% compared to 2.1% in the baseline scenario. The IITR would enter negative quarter-over-quarter growth of 0.2 percentage points.
Source: Compiled by the author based on official data from the Ministry of Economy and the author’s own estimates of the impact
**- Scenario 3. Full-blown crisis: persistent inflation >5%; oil prices >$120, with prolonged spikes to $150; escalation or prolonged impact of the war, financial tightening, and a crisis of confidence **
If the war becomes entrenched, with oil prices persistently reaching $150 and inflation exceeding 5%, the necessary monetary tightening measures could have a more severe impact on economic growth. Thus, GDP would grow by 0.53%, nearly two percentage points less than in the baseline scenario, with employment growth of 0.5% versus 2.1%. In the second quarter of 2023 (IIITR), the economy would enter a recession, with a 1.4% quarter-on-quarter decline in the first quarter of 2023 (IITR) and a 0.4% quarter-on-quarter decline in the second quarter of 2023 (IIITR).
Source: Compiled by the author based on official data from the Ministry of Economy and the author’s own estimates of the impact
Therefore, we are talking about an impact that could range from a 0.2 percentage point decline in growth to nearly 2 percentage points, and a negative impact on employment ranging from nearly 0.2 percentage points to just over 1.5 percentage points.
Source: Compiled by the author based on official data from the Ministry of Economy and the author’s own estimates of the impact.
In this context, the economic policy response is crucial. And yet, there is a recurring temptation: to intervene in prices, subsidize consumption, or increase public spending to “offset” the shock. These measures, while politically appealing, tend to exacerbate the problem by distorting market signals and generating additional deficits. In this regard, the UFV Economic Observatory considers it advisable to avoid responses that involve greater intervention in the economy, an increase in public spending, or a rise in public debt, on the understanding that they could exacerbate structural imbalances in the Spanish economy.
The alternative—less flashy but more effective—involves strengthening supply: facilitating investment, reducing regulatory barriers, and allowing prices to reflect relative scarcity. Only in this way can the efficient reallocation of resources be encouraged. To that end, the plan is to implement a set of urgent and significant measures, ranging from tax cuts to structural reforms:
All of this serves as a prelude to the major reforms the Spanish economy needs in order to grow in a sustainable and productive manner over time.
Ultimately, the closure of the Strait of Hormuz goes beyond the issue of energy, as it has a global impact on prices, trade, investment, and growth; whether the result is a temporary or prolonged crisis will depend on the nature of each economy and the economic policies implemented.
According to the UFV’s analysis, if the government chooses to increase public spending, the economy’s outlook could deteriorate in the medium and long term. Conversely, if it opts to implement tax cuts and economic reforms, economic activity and employment could prove more resilient.
