Europe’s post‑pandemic rebound is stalling as the war in Iran keeps the Strait of Hormuz closed, choking energy supplies. Higher fuel and fertilizer costs are draining public budgets and curbing investment, leaving consumers skittish. Barclays now projects growth of just 0.7% this year, slipping to 0.9% next year, a sharp downgrade from earlier forecasts.

The eurozone’s inflation rate climbed to 3.2% in May, its highest since September 2023, as energy bills surge. The EU has already spent an extra 42 billion euros on energy since February, half of it on natural gas. The European Commission now expects only a modest 1.4% growth in 2027 and inflation around 2.4%.

Policymakers are loosening fiscal rules to fund fuel‑tax cuts and renewable subsidies, while countries such as Portugal and Poland draft new windfall taxes on energy firms. Traders price Brent at roughly $90 a barrel for year‑end, with only modest declines expected. The prolonged price environment will keep European economies under strain through next year.

The lingering energy shock mirrors the 2022 gas crisis, but without immediate relief from the Hormuz blockage, businesses face sustained cost pressures. Investment decisions are being postponed, and consumer confidence has slipped to 2022 lows. As central banks contemplate further rate hikes, the region’s growth trajectory remains precariously flat.