Higher oil prices from the war in the Middle East: assessing the headwinds for euro area growth

Oil supply disruptions related to the war in the Middle East have triggered a sharp rise in oil prices, posing headwinds for euro area economic activity. This box assesses the macroeconomic effects of the shock using a Bayesian vector autoregressive model with identified geopolitical oil supply shocks. The results suggest that supply-driven oil price increases associated with geopolitical events have a persistent negative effect on euro area growth, operating through lower private consumption and investment.

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