Middle East war drives energy surge, pushing up inflation and weakening Dutch economy

A wave of higher energy prices driven by the war in the Middle East is expected to push up inflation, weaken economic growth, and erode household purchasing power in the Netherlands, according to a Centraal Planbureau (CPB) scenario study published Thursday. The projections show broad economic pressure under all scenarios, with sharper impacts if elevated oil prices persist.

The CPB analyzed three scenarios: market expectations based on a short-lived disruption, a temporary spike in energy prices, and a prolonged period of high prices. Across all cases, the study finds faster inflation, weaker growth, and reduced purchasing power, with effects varying significantly depending on how long energy markets remain disrupted.

Under the market expectations scenario, Dutch GDP—the total value of all goods and services produced in the economy—is projected to grow by 1.4 percent in 2026 and 1.1 percent in 2027. Inflation is expected to be 2.3 percent in 2026 and 2.1 percent in 2027, while purchasing power would rise 1.4 percent in 2026 before flattening at 0.0 percent in 2027. Poverty remains stable at 2.5 percent in both years.

If energy prices rise sharply for a shorter period, GDP growth falls to 1.0 percent in 2026 and 0.8 percent in 2027. Inflation climbs to 3.8 percent in 2026 before easing to 2.3 percent in 2027. Purchasing power would stagnate at 0.0 percent in 2026 and rise 0.3 percent in 2027, while poverty would rise to 2.7 percent in both years.

In a prolonged high-price scenario, the economic hit deepens. GDP growth drops to 0.5 percent in 2026 and 0.7 percent in 2027. Inflation rises to 5.1 percent in 2026 and remains elevated at 1.8 percent in 2027. Purchasing power declines 1.2 percent in 2026 before recovering slightly to 1.0 percent in 2027. Poverty increases to 2.7 percent in 2026 and 2.9 percent in 2027.

In the most severe case outlined, GDP growth slows further to 0.3 percent in 2026 and 0.0 percent in 2027. Inflation reaches 5.3 percent in 2026 and 3.3 percent in 2027. Purchasing power falls 1.4 percent in 2026 and recovers only marginally to 0.1 percent in 2027. Poverty rises to 3.0 percent in 2026 and 3.1 percent in 2027.

The CPB said the shock to energy markets feeds quickly into the wider economy. Higher fuel prices raise transport costs and ripple through supply chains, lifting prices for goods and services.

While energy bills are expected to rise less sharply than during the 2022 crisis due to smaller gas price increases, inflation still climbs enough to suppress consumption and trade. Any recovery in real incomes is expected to depend on wage growth lagging behind price increases.

Before the shock, households were expected to see purchasing power rise by 1.4 percent this year. That forecast has now been revised to flat growth, NOS reported. It added that in the temporary spike scenario, purchasing power would fall by 1.2 percent, and in the prolonged scenario, by 1.4 percent. Inflation outcomes show the same pressure: 3.8 percent if the disruption is short-lived and up to 5.3 percent if elevated prices persist.

Lower-income households face the most uneven impacts. The CPB found that roughly 30 percent of households with incomes up to 110 percent of the poverty threshold own a car, making them directly exposed to higher fuel costs. For these households, annual costs increase by about 200 to 350 euros, with some cases exceeding 1,000 euros depending on driving distance.

The analysis covers about 775,000 people in or just above the poverty threshold group, with roughly one-third owning at least one vehicle. The CPB said the variation in outcomes within this group is large, driven primarily by differences in mobility and fuel consumption.

On trade exposure, the CPB noted that Dutch imports from the Gulf region are dominated by oil. While most products imported from the region can be sourced elsewhere, substitution would likely cost more. Smaller firms relying on Gulf suppliers are more vulnerable because of their dependence on specific supply chains.

The CPB warned that broad government compensation schemes would be inefficient and could slow the energy transition. It argued that resilience depends on reducing reliance on fossil fuels and emphasized that any support measures should be temporary and targeted. Extended periods of high prices, it added, would reportedly make short-term compensation harder to justify and increase pressure for structural changes in energy use and production.

CPB director Pieter Hasekamp said, “Wages will respond to prices and oil prices will fall, but there will be no increase in purchasing power this year.” He added, “Because the Netherlands imports more energy than it exports, we are simply facing higher costs; it is fundamentally a distribution issue. The government should primarily support vulnerable groups where possible.”

He also warned on policy coordination, saying, “It would be better if there were more European coordination in this area. Everyone is now pursuing their own solution, which means we are partially competing with one another.”