VCI warns Iran escalation is raising costs, uncertainty for chemical industry

Frankfurt, Germany – Germany’s chemical industry association VCI has warned that the escalation of the US-Israeli war with Iran is pushing up energy prices and geopolitical uncertainty.

In a statement released 10 March, the VCI cited several recent economic studies showing the conflict is adding pressure on the chemical sector and wider European industry through “energy prices, uncertainty and fragile logistics chains”.

Since the conflict began 28 Feb, energy markets have reacted sharply, according to VCI.

Oil prices rose “by more than 20% in the short term,” while gas prices “temporarily surged by more than 50%” following supply disruptions in Qatar.

According to VCI, price spikes are putting additional strain on energy-intensive industries and directly affecting cost structures in the chemical sector.

Citing a recent analysis by Deutsche Bank Research, VCI said it is estimateed that the ongoing uncertainty alone could reduce eurozone GDP by about 0.25%.

Meanwhile higher energy prices could raise inflation in 2026 by around 0.2 percentage points, the Deutsche Bank study added.

While the current energy shock is smaller than the one seen in 2022, the institute noted that “Europe’s fiscal room for manoeuvre is now more limited.”

In a separate study, the German Economic Institute (IW) in Cologne modelled oil price scenarios and estimated the burden on Germany could reach up to €40 billion if prices rise to $100 per barrel and more than €80 billion at $150 per barrel.

Energy- and transport-intensive industries would be particularly affected, VCI said.

The Ifo Institute also highlighted the strategic importance of the Strait of Hormuz, controlled by Iran.

While the European Union’s overall direct trade dependence on the region is relatively low, imports of certain critical commodities – including crude oil, LNG and aluminium – are “significantly more exposed”.

“A blockade would primarily have an impact through price shocks and global value chains,” the institute said.

Another study by the Federation of German Industries (BDI) found the conflict is currently affecting the economy mainly through energy markets and rising uncertainty.

In the short term, Germany’s energy supply remains secure, but “the price effects are considerable,” the study said.

VCI also pointed to mounting logistical pressures, including closed airspace, tankers delayed at sea and shipping routes diverted around the Cape of Good Hope, all of which are increasing transport costs.

Overall, VCI noted that the studies point to limited direct trade ties with Iran but significant “indirect risks” through energy prices, uncertainty and fragile logistics chains.

For chemical companies, this translates into higher procurement costs, more vulnerable supply chains, weaker demand and “an increasingly volatile production environment,” VCI said.