Research
Economic Quarterly The Netherlands June 2026: Middle East crisis causes economic pain, but no recession
The ongoing crisis in the Middle East continues to dominate the economic outlook, causing disruptions to energy markets and supply chains worldwide. Despite these shocks, the Dutch economy is expected to continue growing this year and next, albeit at a more moderate pace. GDP is projected to increase by 1.0% in 2026 and by 0.8% in 2027.
Summary
Developments in the Middle East continue to dominate our projections for the Dutch economy. The Strait of Hormuz has now been almost completely closed for three months, reducing global supply by around 15 million barrels per day of crude oil and refined products compared to pre-conflict levels (see Figure 1). This is equivalent to approximately 14% of global demand for crude oil and petroleum products.
While part of this shock can temporarily be absorbed through inventory drawdowns and weaker fuel demand, the prolonged disruption is driving up energy prices and creating frictions in global supply chains, with implications for inflation, economic growth, and international trade flows. In this Economic Quarterly, we present our baseline scenario for the trajectory of the Middle East crisis and assess the implications for the Dutch economy.
Figure 1: 15 million fewer barrels per day in oil and petroleum product supply
New baseline Middle East crisis
In our late-March projectionsNL, we assumed that the US and Iran would reach an agreement in May, allowing the Strait of Hormuz to gradually reopen to oil and gas shipments. Under that scenario, a normalization of global oil supplies toward the end of September appeared feasible.
At the time of writing, however, the US and Iran have not yet signed a long-awaited preliminary deal, which was intended to mark the start of an approximately 60-day negotiation period aimed at reaching durable arrangements for a structural resolution of the conflict. We expect such a deal to include provisions on, among other things, the reopening of the Strait of Hormuz, the release of frozen Iranian assets, and, possibly, limited sanctions relief. At the same time, concrete arrangements will likely be lacking, for example with regard to a potential Iranian toll system in the Strait of Hormuz or the transfer of Iranian enriched uranium.
In our updated baseline scenario, we expect negotiations to break down (see this report by our global strategist for further details), which would likely lead to a renewed escalation of the conflict at some point during the summer. The US requirement for Iran to transfer or dismantle its stockpile of enriched uranium is likely to prove the main stumbling block. Iran has indicated that this uranium is “as important and sacred as our soil” and the result of its own scientific efforts. In addition, Iran’s internal decision-making structure complicates the prospects for a compromise. Formal agreement at the highest political level is not decisive, as the Islamic Revolutionary Guard Corps (IRGC) in particular holds de facto veto power and has little incentive to support far-reaching concessions. The IRGC derives a significant share of its political and economic influence from the existing system of sanctions, regional tensions, and state control.
Reopening on paper ≠ Large-scale energy shipments via Hormuz
This also implies that even if the Strait of Hormuz is formally reopened, large-scale shipments of oil, petroleum products, and liquefied natural gas (LNG) are unlikely to resume in practice before September (see this report by our energy analysts for further details). First, it will take four to six weeks to clear the naval mines deployed by Iran in the Strait of Hormuz. As long as this has not been completed, insurers and shipping companies will remain cautious. Second, many oil tankers are currently positioned in the wrong locations. Shipping companies in the Persian Gulf indicate that restoring logistical chains will take at least two months. Third, refineries and terminals in the Gulf region have been damaged by drone strikes and bombardments. Repairs will take time, not least because the required materials largely need to be transported via the same constrained route.
Finally, there is considerable uncertainty about how quickly oil production in the region can be restored. The shutdown of oil fields leads to declining reservoir pressure, while installations require technical repairs, meaning that production can only be ramped up gradually. Our energy analysts expect that, under favorable conditions, around 70% of the disrupted production will be restored within three months of reopening, and approximately 88% within six months. It is also uncertain whether Iran will quickly release the more than 1,500 tankers currently stranded in the Persian Gulf, as doing so would significantly weaken its negotiating position. Overall, the reopening of the Strait of Hormuz is unlikely to lead to an immediate recovery in large-scale energy flows.
Rising economic damage leads to greater Chinese involvement
The continued absence of large-scale shipments of oil, fuels, and LNG will lead to increasing bottlenecks in the global oil supply chain (see Box 1). The resulting economic damage will force countries that have so far largely operated behind the scenes to take a more active role in the conflict. This is particularly true for Asian economies, as around 80% of crude oil exports passing through the Strait of Hormuz are destined for this region.
This increased involvement may take the form of intensified diplomatic efforts. China, in particular, is likely to play a key role, including by exerting pressure on Iran to reach a structural resolution of the conflict. If these efforts prove insufficient, a coordinated deployment of maritime capabilities by China and NATO countries to safeguard security in the Strait of Hormuz also appears likely.
Against the backdrop of substantial global economic interests, we ultimately expect that a structural resolution to the conflict will be reached toward September.
Uncertain path ahead
Given the high volatility and conflicting information, we are unable to outline a single clear path toward a permanent resolution. That said, we consider two elements to be likely across most scenarios:
- The Strait of Hormuz can be reopened relatively quickly on paper, but large-scale shipments of oil, fuels, and LNG will only gradually resume from September onwards.
- Rising economic damage and broader international involvement, particularly a key role for China, will increase pressure to reach a structural resolution of the conflict.
Alternative scenarios: rapid breakthrough or prolonged stalemate
In addition to the baseline scenario, several alternative scenarios can be envisaged. One set of “breakout” scenarios involves an upside deviation from the baseline, resulting in a more moderate economic outcome. This would occur if Iran proves willing at an early stage of negotiations to transfer its enriched uranium, thereby removing a key obstacle to a durable resolution. There are already indications that Iran may be willing to place its uranium in China. If the US were to agree, this could pave the way for further rapprochement on other issues, such as the lifting of economic sanctions and the introduction of a toll system allowing Iran to generate revenues from the oil exports of other Gulf states. In this scenario, a framework agreement would provide a sufficiently solid basis for a lasting solution.
A “breakout” scenario is also conceivable from the US side. Following stalled negotiations, the US could decide to (partially) withdraw from the Gulf region, partly in light of the upcoming midterm elections in November. This would effectively grant Iran control over the Strait of Hormuz. While this could ease tensions in the short term, it would carry potentially far-reaching geopolitical consequences. Iran would, in that case, be in a position to selectively influence global energy flows, while the credibility of the US as a guarantor of freedom of navigation and regional security would come under pressure. Combined with the absence of agreements on enriched uranium, this would increase the risk of nuclear proliferation and a structural realignment of power balances in the Middle East.
In a more adverse scenario, China is also unable to force a breakthrough, leaving the global economy confronted with constrained supplies of crude oil, petroleum products, and LNG for more than six months. According to our partial estimates, this would result in widespread global bottlenecks, including in Europe (see also Box 1). In such a scenario, oil inventories would be depleted, increasing the incentive for geopolitical blocs to impose export restrictions, making fragmentation of global oil markets a distinct possibility.
Inventories of refined products are declining, but physical shortages are unlikely
The ongoing disruptions in energy markets are also reflected in declining oil inventories. Many countries are drawing on their strategic reserves. In total, 32 member countries of the International Energy Agency (IEA) have released 400 million barrels of crude oil, with the Netherlands contributing 5.4 million barrel, around 20% of its strategic reserves. Commercial parties also hold inventories, of both crude oil and refined products, and are now bringing these to market. A significant share of Europe’s storage capacity is located in the ports of Antwerp, Rotterdam, and Amsterdam (the ARA hub). Since the outbreak of the conflict, gasoline and diesel inventories in this hub have declined by 16% and 18%, respectively. Jet fuel inventories are down by 33%, and fuel oil stocks have fallen by as much as 37% (see Figure 2).
Figure 2: ARA oil inventories (Amsterdam–Rotterdam–Antwerp)
Despite declining inventories, we do not anticipate acute physical fuel shortages in Europe and the Netherlands in our baseline scenario. Shortages typically arise from logistical bottlenecks or market interventions that distort the price mechanism. Given the Netherlands’ strong connectivity within the global oil supply chain as a major hub, the likelihood of logistical disruptions remains very limited. Moreover, the continued functioning of market-based pricing in energy markets ensures that scarcity is initially reflected in higher global energy prices, which curb demand and reallocate available supply toward its most economically valuable uses.
Box 1: Extended closure of the Strait of Hormuz may result in bottlenecks in jet fuel supply
In a previous partial analysis, we concluded that a closure of the Strait of Hormuz through May would not lead to bottlenecks in European inventories of refined products, under a hypothetical scenario of unchanged demand. In a scenario where the Strait remains closed for one year, however, bottlenecks would emerge in jet fuel, fuel oil, and diesel.
We have now updated this analysis for a closure through September. In this case, bottlenecks in Europe are expected to arise only in jet fuel. This does not imply that flights in Europe would cease from October onward, but rather that demand would need to adjust to a more limited supply through higher jet fuel prices. In practice, this would translate into reduced flight frequencies, temporary route cancellations, and higher ticket prices, affecting the aviation sector, tourism, and business travel globally.
The impact would not be limited to passenger transport but would also extend to air freight. While air cargo accounts for less than 1% of global trade by volume, it represents roughly one-third of total trade value. Disruptions in time-sensitive and high-value supply chains – such as high-tech (semiconductors), industrial goods (critical components), and pharmaceuticals (medicines and vaccines) – could therefore have significant economic consequences. At the same time, available capacity would shift toward users with the highest willingness to pay, making air transport for bulky, relatively low-value goods (such as flowers) economically unviable in a prolonged high-price environment.
General economic outlook for the Netherlands
We expect the Dutch economy to grow by 1.0% this year relative to 2025, and by 0.8% next year (see Figure 3 and Table 1). This represents a downward revision of 0.2 percentage points per year compared with our late-March projectionsNL, for two reasons. First, the realized growth rate in the first quarter of 2026 (0.1% quarter-over-quarter) came in two-tenths of a percentage point below our expectations.
Second, the longer-than-anticipated closure of the Strait of Hormuz plays an important role in our updated baseline scenario. The closure is driving higher oil and gas prices, which – after some lag – translate into significantly higher inflation, particularly in 2027 (3.9%). Combined with higher tax and social security burdens for households under the coalition agreement, this is expected to weigh on household purchasing power and dampen private consumption growth. Business and residential investments are also under pressure due to global uncertainty, rising interest rates, and domestic constraints such as nitrogen regulations and grid congestion.
By contrast, higher government consumption and investment provide support to overall economic growth. The aging population is driving a sharp increase in healthcare spending, while the government is also set to significantly ramp up defense investment in the coming years. In addition, net trade, particularly next year, is expected to make a positive contribution to economic growth once again.
Figure 3: Dutch economy to continue growing at a moderate pace in the coming years
Table 1: Macroeconomic outlook for the Netherlands
No recession, yet economic damage
Despite the geopolitical developments and an energy crisis that the International Energy Agency (IEA) has described as the most severe on record, we do not expect the Dutch economy to enter a recession.[1] This is also reflected in the relatively low unemployment rate, which is projected to rise to an average of 4.5% in 2027 – still below the level recorded during the first year of the Covid-19 pandemic.
This does not mean, however, that the Netherlands will be spared from economic pain resulting from the Middle East crisis. First, economic growth in 2026 is distorted by significant carryover effects from 2025 of more than 0.6 percentage points (for a detailed explanation of carryover effects, see this reportNL). Second, compared with our pre-war projections, we have already revised down expected GDP growth by 0.5 percentage points for 2026 and by 0.6 percentage points for 2027. Finally, the negative effects of higher energy prices are highly uneven across the economy, disproportionately affecting sectors such as transport, parts of agriculture and industry, trade, and construction (see also the forthcoming sector forecastsNL). Household purchasing power is also set to deteriorate.
High oil and gas prices push up inflation
Due to the longer-than-anticipated closure of the Strait of Hormuz, we have revised our oil and gas price projections upward. We currently assume that persistent bottlenecks in the physical global energy supply chain will push the oil price to a peak of USD 135 per barrel in August (see Figure 4), while gas prices are expected to peak at USD 76 per megawatt-hour in the winter (see Figure 5).
In the near term, the response in gas markets is relatively muted, as seasonal demand is lower and Europe remains in the refill season, allowing the system to continue functioning despite higher marginal costs. At the same time, global competition for LNG is intensifying and supply is becoming structurally tighter. In addition, many energy companies currently have an incentive to delay the buildup of gas inventories in anticipation of a structural resolution of the Middle East crisis and potentially lower gas prices later this year. As a result, the risks of scarcity and elevated gas prices are effectively being shifted to the winter season.
Higher energy prices are initially reflected in increased fuel prices and higher household energy bills. Gasoline prices could rise to around EUR 2.82 per liter in August and September (see Figure 6). The cost of a new energy contract is also expected to increase, reaching nearly EUR 270 per month in December due to higher gas prices (see Figure 7). While this is significantly higher than the roughly EUR 200 per month seen at the beginning of the year, it remains well below the peak of EUR 525 per month observed during the 2022 energy crisis.
[1] We do not rely on the “technical” definition of a recession as two consecutive quarters of GDP contraction. Instead, we define a recession as a significant and broad-based decline in economic activity over an extended period. In this context, it is important to consider not only economic growth, but also indicators such as industrial production, confidence, and labor market developments.
Figure 4: Oil price could rise to USD 135 per barrel in August
Figure 5: Gas prices are expected to rise to EUR 76/MWh by year-end
Inflation
Higher energy prices not only result in direct energy price inflation but, through delayed transmission effectsNL, also push up the prices of food, industrial goods, and eventually – later this year and into next – services. We expect consumer price inflation (HICP) to average around 3.0% this year and to rise further to 3.9% next year, with a peak of 4.3% in February (see Figure 8).
The contribution of different components to inflation follows a strongly sequential pattern. As the direct contribution of higher energy prices to headline inflation begins to fade, upward pressure on food prices is expected to intensify, as energy contracts expire and low-cost inventories are depleted. In addition to higher direct energy costs, food manufacturers are also facing rising transportation costs and higher input prices due to bottlenecks in fertilizer supply chains, while food retailers face higher labor costs due to the increase in the minimum youth wage in 2027.
Following the increase in food price inflation, we expect prices for industrial goods to rise as well, while services inflation is likely to remain elevated due to strong wage growth.
Figure 6: Gasoline prices rise to EUR 2.82 per liter
Figure 7: Cost of a new energy contract rises to EUR 270
Figure 8: Inflation is expected to rise to above 4% in early 2027
Wages and real purchasing power
Higher inflation is putting pressure on household purchasing power. Trade unions are expected to adjust their wage demands more quickly to the energy price shock than during the 2022 energy crisis, with nominal wage growth broadly tracking consumer price developments. As a result, we do not anticipate a pronounced decline in real wages (see Figure 9).
Nonetheless, we expect purchasing power to decline by 0.7% in 2027 (see Figure 10), as elevated inflation is compounded by fiscal tightening measures set out in the coalition agreement. These include higher effective tax burdens in the lower and middle income brackets, due to increases in marginal tax rates and the incomplete indexation of tax brackets, credits, and deductions. In addition, households will face higher out-of-pocket healthcare costs as a result of an increase in the mandatory health insurance deductible.
Figure 9: Real wages are not expected to decline
Figure 10: Purchasing power will decline by 0.7% in 2027
Private investment
Business investment is expected to decline by 0.8% this year. We expect the ECB to raise its policy rate twice this year by 25 basis points, and higher interest rates will make investment more costly. At the same time, uncertainty surrounding the course of the war in the Middle East may make firms more cautious, as it weighs on expected returns and lengthens payback periods.
In the first months following the outbreak of the war, however, this uncertainty was not yet reflected in industrial producer confidence: in April, confidence remained clearly higher than in the same month a year earlier (see Figure 11). At that time, sentiment was mainly dampened by the import tariffs announced by President Trump on April 2, 2025 (“Liberation Day”). The fact that assessments of inventories and order books even improved slightly in April compared with February and March may be the result of frontloading, with firms bringing forward purchases of intermediate goods and raw materials in anticipation of further disruptions to global supply chains.
In May, however, the picture shifted somewhat. Producers have become notably more negative about expected activity. As the war appears likely to last longer than initially anticipated, we expect confidence to weaken further. As a result, the decline in business investment is likely to become more pronounced in the third and fourth quarters, with quarter-on-quarter contractions of around 1% in both periods.
Figure 11: Producer confidence in industry lowers in May but remains relatively high
Business investment is expected to resume growth from early 2027 onward. However, due to negative carryover effectsNL, the annual average is still projected to show a contraction of 0.4% that year. In addition to the war in the Middle East, structural constraints – such as nitrogen regulations and grid congestion – will continue to weigh on investment. This also explains why the recovery in 2027 is expected to remain modest.
Housing investment
Although a large number of new homes will be completed this year, sales of newly built owner-occupied homes are currently stagnating. In the first four months of 2026, sales declined by as much as 12% compared with the same period a year earlier. Residential construction by housing associations and private landlords is also under pressure. Rising mortgage rates due to the Middle East crisis, combined with increased uncertainty, are further weighing on demand for new housing. This is likely to result in the postponement or cancellation of some construction projects. However, given the large pipeline of projects and persistent bottlenecks in the construction sector, we do not expect a decline in home sales to translate one-for-one into lower residential investment. Any freed-up capacity can be redeployed to other projects. At the same time, supply-side constraints remain significant. Some housing projects are being delayed due to nitrogen regulations or grid congestion, and we expect the Water Framework Directive to also start affecting new construction from 2027 onward. While residential investment still grew by 3.7% in 2025, it is expected to decline by 1.4% this year and by 2.7% next year.
Goverment spending
Government spending will remain a key driver of economic growth this year and next. Government consumption is expected to rise by 2.2% this year and by 1.7% in 2027, driven by higher healthcare spending as well as increased outlays on public safety and defense. The Spring Memorandum indicates, however, that healthcare spending is coming in slightly below the levels projected by the Dutch government on Budget Day. At the same time, spending on asylum and earthquake damage compensation in Groningen is higher than previously anticipated.
Government investment is projected to grow by 4.5% in 2026 and by 3.3% in 2027, primarily reflecting increased spending on defense equipment, infrastructure, and climate and energy projects. We assume, however, that the government will not be able to fully execute all planned investments, partly due to labor shortages. This shortfall in the implementation of planned spending is commonly referred to as underspending. A cooling of the economy as a result of the Middle East conflict could, however, reduce the extent of such underspending somewhat.
International trade
Exports contracted by 0.6% in the first quarter. This decline was not particularly surprising against the backdrop of heightened geopolitical uncertainty, higher US import tariffs of 15% following the US-EU trade agreement, and the more gradual deterioration of Dutch competitivenessNL. In addition, the decline likely reflects some correction after relatively strong export figures in earlier periods.
Looking ahead, we expect Dutch exports to pick up again in the coming quarters, bringing average export growth to 1.4% this year and 1.9% next year. First, global trade is likely to stabilize gradually after a period of pronounced volatility, allowing Dutch exports to realign with underlying global demand growth. In addition, higher transportation costs resulting from the Middle East crisis temporarily reduce competitive pressures from abroad – particularly from China – providing some near-term support to exports and profitability.
It is important to emphasize, however, that this effect is expected to be temporary. Once transportation costs normalize, structural competitive pressures from China are likely to reassert themselves, particularly in sectors such as automotive and chemicalsNL. At the same time, there is growing policy awareness in Europe that competition from Chinese imports is eroding the European industrial base. In Brussels, alongside the introduction of “Made in Europe” labelling requirements in public procurement, policymakers are also considering more unconventional measures to shield European industry from (unfair) competition from Chinese imports. Over time, such policies could help mitigate downward pressure on the market shares of European exporters.