Oil Above $100 Threatens to Slow Portuguese Economy in 2026

The escalation of the crisis in the Middle East is placing significant upward pressure on oil prices and putting the Portuguese Government’s macroeconomic outlook for 2026 at risk. According to an analysis by BA&N Research Unit, the persistence of Brent crude above $100 per barrel could cut Portugal’s GDP growth to around half of what is projected in the State Budget.

Brent surge exceeds official forecasts

Oil prices have risen sharply since the start of the year, driven by the war in Iran and disruption in the Persian Gulf. In March, Brent reached $119.5 per barrel — its highest level since 2022 — and has gained around 88% since January.

This level places crude prices more than 70% above the estimate used by the Ministry of Finance in the 2026 State Budget, which assumed an average of $65.4 per barrel. For that forecast to materialise, oil prices would need to fall to around $63 for the remainder of the year — a scenario considered unlikely under current geopolitical conditions.

Direct impact on economic growth

Portugal remains highly dependent on energy imports, making it particularly vulnerable to international price shocks. The analysis suggests that if oil remains in triple digits, the negative impact on GDP could range between 0.3 and 1.1 percentage points.

In the most pessimistic scenario, aligned with estimates from the International Monetary Fund, economic growth could fall to around 1.2% in 2026 — roughly half of the Government’s projected 2.3%.

In a more extreme case, with Brent approaching $120 or higher, growth could drop close to zero, marking the weakest economic performance since the pandemic (excluding that period) and the lowest since 2014.

Consumption and investment under pressure

Rising energy prices are expected to have ripple effects across the economy. Higher fuel costs are already reducing households’ disposable income and are likely to feed through into broader increases in the prices of goods and services.

This environment could lead to a contraction in private consumption and a slowdown in business investment, as production costs increase. Although part of the impact may be offset by reduced imports, the overall effect remains negative for economic activity.

Inflation risks intensify

Beyond growth, inflation is another key concern. While the Government expects a relatively moderate effect, institutions such as the European Central Bank and the IMF point to a more pronounced increase in prices.

If oil remains above $100 per barrel, inflation could rise by as much as two percentage points, further intensifying pressure on households and businesses.

High uncertainty clouds outlook

The outcome of the war in Iran will be decisive for the trajectory of energy prices. The Strait of Hormuz — through which around one-fifth of global oil supply passes — remains a critical chokepoint, and sustained damage to infrastructure in the region could keep prices elevated for longer.

Even in a scenario where tensions ease, analysts consider a return to pre-war price levels unlikely in the short term, reinforcing risks to the Portuguese economy.

Government may need to revise outlook

Persistently high oil prices are putting pressure on public finances and may force the Government to revise the macroeconomic framework set out in the State Budget.

If the Government’s more conservative estimates hold, the impact may remain contained. However, if more adverse scenarios outlined by international institutions materialise, Portugal could face a significant energy shock with wide-ranging effects on growth, inflation and overall economic stability in 2026.