In Berlin, the scientific advisors to Economics Minister Katherina Reiche presented their impact assessment of the new energy crisis. The trigger is the Iran-Iraq War, which is once again putting pressure on energy markets and leading to higher prices for gas and oil in Germany. The economists therefore advise against rapid price controls such as subsidies or fuel discounts. Instead, they advocate a broader energy mix, increased domestic gas production, and a review of fracking. The decisive risk factor remains the duration of the conflict, because a protracted war could simultaneously negatively impact inflation, economic growth, and the replenishment of gas storage facilities. (tagesschau: 13.03.26)
No price cuts, but tougher market logic
The four consultants are critical of short-term price reductions because, in their assessment, they would weaken the scarcity signal. In their brief report, they therefore warn against “short-term activism.” They state verbatim: “In times of existing or anticipated scarcity, price signals are inherently important for influencing consumer behavior and curbing consumption.” The position is clear, but politically sensitive, because many households and businesses are already suffering from rising energy costs.
From the panel’s perspective, policymakers must now focus on diversifying energy supplies. This includes not only imports from various sources but also greater use of domestic resources. Therefore, the consultants are proposing an expansion of domestic gas production and calling for an examination of fracking. The method remains controversial because potential environmental consequences have been fueling resistance for years. At the same time, the economists point out that other countries have long been using this technology.
The Fracking Issue Impacts German Energy Policy
The consultants, led by Veronika Grimm, consider Germany’s unique approach to gas production to be contradictory. In their report, they write that “a complete abandonment of domestic production while simultaneously importing corresponding energy sources raises ethical questions regarding the global distribution of economic benefits and environmental risks.” The core message is clear: Germany largely rejects fracking domestically but imports gas from countries that use precisely this method. Reiche herself did not comment further on the proposal but said she was grateful for the advice and did not endorse the panel’s positions on every point.
Besides production, economists are also focusing on gas storage. While they currently see no immediate cause for supply anxiety, they believe the existing storage strategy needs review. If Germany were to create a national gas reserve modeled on its oil reserves, storage capacities would first have to be expanded. At the same time, they warn against designing government regulations in such a way as to ultimately lead to even higher prices. This is precisely where a conflict of objectives lies, because greater security usually also means higher costs.
Protracted War Could Impact Winter Gas Supply and Growth
Torsten Schmidt of the RWI Leibniz Institute takes an even more skeptical view of the situation. He warns that the currently low storage levels could become a problem next winter. His concern is specific: “I see a risk that we won’t be able to fill the gas storage facilities by winter, especially if the war with Iran lasts longer than expected.” High prices further complicate storage, because traders often see no economic incentive under these conditions. This increases the pressure on security of supply, while costs remain high.
For economic and monetary policy, the timeline of the war is therefore of paramount importance. The longer the conflict lasts, the greater the risks to inflation and growth in Germany become. The European Central Bank is also coming into focus, as markets are already anticipating two interest rate hikes totaling 0.5 percent this year. Higher interest rates could further dampen the economy, while energy prices are already a burden. Clemens Fuest of the Ifo Institute does not expect a severe slump, but speaks of a clear slowdown. His assessment provides some relief, but does not change the core problem: A long war in the Middle East could be very costly for Germany.