Hormuz: time is against us

The economic impact of the war with Iran is yet to be written. If a deal is reached in the short term and the movement of goods through the Strait of Hormuz resumes relatively quickly, the macroeconomic effect could be limited. Amid the recent emphasis on the downside risks, it is important not to lose sight of this scenario. Not only is it plausible, but it could be the most likely. Indeed, the fact that the market reaction to date has been contained – with the main stock market indices near all-time highs – points in that direction. If this scenario materialises, the Spanish economy could maintain dynamic growth.

The starting point is solid. This is confirmed by the main indicators for Q1 published recently, along with the first figures available for Q2. GDP grew by 0.6% quarter-on-quarter and by 2.7% year-on-year, slightly above what was forecast in our scenario at the start of the year, before the outbreak of the conflict. The composition of growth remains favourable: it rests on domestic demand, particularly household consumption and investment, which consolidated the strong momentum of recent quarters and maintained a growth rate exceeding 5% year-on-year. Services exports are showing no signs of exhaustion either, in both the tourism sector and the non-tourism sector. This positive tone in economic activity was also accompanied by a strong labour market: according to the LFS, employment was up 0.4% quarter-on-quarter in seasonally adjusted terms.

High-frequency indicators suggest that this inertia has persisted at the start of Q2, despite the conflict already lasting two months. The CaixaBank Research Consumption Monitor, with data up to April, shows that domestic consumption expenditure continues to grow at a steady pace. This growth is supported by categories such as leisure and catering, which have been booming for several quarters now, while spending on fashion, furniture and decoration have recently joined the trend. These categories are particularly sensitive to the perception of the economic environment. Their strength thus suggests that households are confident in the resilience of the

Spanish economy amid a challenging context. There are several factors influencing this perception: the resilience of the labour market; inflation, which although above 3% is showing no signs of acceleration, and interest rates, which have increased only slightly and remain far from the levels reached after the outbreak of the war in Ukraine.

With this starting point, if the conflict were resolved quickly and energy prices eased, the new shock should not materially affect the Spanish economy. Indeed, growth would probably end up being below the 2.4% envisaged in our forecast scenario, but it could still be above 2%. For reference, a 10-dollar increase in the oil price and a 10-euro rise in gas prices typically subtracts around 0.15 and 0.10 pps from growth, respectively. At the close of this report, futures prices for the entire year place the average price for 2026 some 30 euros above the levels that were expected before the conflict in the case of crude oil, and 15 euros higher in the case of gas. We must also consider the recent approval of a fiscal support package equivalent to 0.3 pps of GDP. Overall, the energy shock would have a noticeable impact, but insufficient to halt the expansion of the Spanish economy.

However, time is working against this more moderate scenario. The closure of the Strait of Hormuz has caused a significant deficit in global oil and gas production, which is currently unable to meet demand, and world stockpiles are rapidly being depleted. If the situation persists, some countries – particularly those in Asia or with lower purchasing power – could begin to experience supply issues. In this context, the reaction of markets would be unlikely to remain so complacent, energy prices would become strained and household confidence would ultimately be affected.

It is therefore advisable to consider all scenarios. There are plenty of reasons to believe the situation could escalate. But it is also not advisable to jump to conclusions. Time is against us, but the economy is still holding up.