Iran war shock in Germany felt most by poorest households, pensioners

The financial fallout from the Iran war in Germany is hitting low-income households and pensioners hardest, the Munich-based ifo Institute said on Monday. 

Since the Iran war began in late February, oil and gas prices have risen sharply worldwide due to Tehran's blockade of the Strait of Hormuz. Germany has been among the countries affected by rising inflation, with consumer prices soaring by 2.9% in April. 

Not all German residents are being hit the same, however. 

The poorest 10% of households are losing up to 2.87% of their disposable income as a result, while the figure for the wealthiest is only 0.65%, the institute calculated.

"We can see that poorer households are less able to avoid a price shock originating thousands of kilometres away and are suffering greater losses in purchasing power," said ifo researcher Tiphaine Wibault. 

Overall, the researchers estimate that the Iran war and its consequences will push consumer spending by German households around €16.8 billion higher. Across all households, the average loss amounts to around 1.15% of disposable income.

"Precisely because there is no European price cap for this shock, as there was during the energy crisis of 2022, the burden lands almost unchecked on households - and especially on those with low incomes," said ifo expert Andreas Peichl.

Older people are also disproportionately affected. Retired couples are losing 1.53% of their income as a result of the price shock, while pensioners living alone are losing 1.45%. 

The reason, according to the researchers, is that pensioners have no wage income to act as a buffer and must spend an above-average share of their budget on heating and energy costs.