The Strait of Hormuz blockade is a looming threat to Ireland's economic stability, with the potential to push inflation to 7% if it persists. This is according to AIB's latest economic outlook, which warns of a dire scenario if oil prices continue to soar. The bank predicts a 4% average inflation rate this year, but a more severe blockade could see prices skyrocket to 6-7%, rivaling the 2022 peak of 9.5%.
This extreme outcome would mean oil prices reaching $150 a barrel and natural gas prices more than doubling to €100 per kilowatt hour (kWh). While Ireland has made some progress in reducing its reliance on fossil fuels, it remains highly vulnerable to price shocks, especially with only 16% of its energy output coming from renewables, compared to the European average of 25%.
The Irish economy is expected to grow, but at a slower pace due to global uncertainty. Modified domestic demand is predicted to fall from 4.9% last year to 2.7% this year and 2.6% in 2027, with risks leaning towards the negative. Real wage growth will be offset by inflation, leaving households worse off. However, an easing of global uncertainty could boost domestic spending and investment in the long term.
Housing is a bright spot, with new home completions expected to rise to 39,000 units this year, driven by a surge in the apartment category. Key infrastructure delivery in water, sewerage, and energy will be crucial for sustained growth. The global macro backdrop has dimmed, with US trade policy uncertainty easing but Middle East conflicts threatening growth.
In conclusion, the Strait of Hormuz blockade poses a significant risk to Ireland's economy, with potential inflationary pressures and slower growth. AIB's outlook highlights the need for a renewed focus on decarbonisation and short-term energy supports to mitigate these risks. The Irish economy's resilience is commendable, but the future remains uncertain, with potential cooling in growth in 2026 and 2027.
