Iran War and Rising Energy Costs: Impact on Irish Inflation

Irish headline inflation accelerated to 3.6 per cent in March 2026, driven by a sharp surge in energy prices following the outbreak of conflict in Iran. According to the latest Harmonised Index of Consumer Prices (HICP), the inflation rate rose from 2.5 per cent in February 2026.

The increase was primarily fueled by energy prices, which rose by 11.1 per cent during the month of March and increased by 12.3 per cent over the 12 months ending in March 2026. Analysis from Davy indicated that in the absence of the war in the Middle East, Ireland’s headline inflation would likely have declined to approximately 2.3 per cent in March 2026.

Energy Market Disruptions

The price volatility followed US and Israeli air strikes on Iran that began on March 2, 2026. The conflict led to the effective closure of the Strait of Hormuz by Iran, which halted global shipments of oil and gas through the channel and triggered a sudden spike in energy costs.

Brent crude, the global benchmark, topped $116 (€101) a barrel during March 2026. This followed a period where wholesale oil prices had already been climbing, rising from just over $60 a barrel at the beginning of 2026 to $70 in February 2026, before jumping to over $91 a barrel in the first week of March.

Impact on Consumer Heating and Fuel

The home heating oil market experienced a dramatic price increase immediately following the start of the conflict. On March 2, 2026, the average price for 500 litres of home heating oil was below €500. By March 6, 2026, prices quoted on oilprices.ie reached between €798 and €833.

This rapid escalation prompted Minister for Enterprise Peter Burke to task the Competition and Consumer Protection Commission (CCPC) with an immediate investigation into potential price gouging. Kevin McPartlan of Fuels for Ireland, the industry’s umbrella group, stated that accusations of gouging were unfounded and described the calls for an investigation as performative.

Petrol and diesel prices also rose quickly. In February 2026, the average price for diesel was €1.72 and petrol was €1.73. Following the outbreak of war, some stations began charging €1.80 for unleaded petrol and €1.90 for diesel. Motoring expert Conor Faughnan noted that while there is typically a 10-day to two-week lag before wholesale increases reach the pumps, prices rose within 24 hours of the outbreak of war.

Broader Economic Indicators

While energy costs drove inflation upward, other sectors showed different trends. Food prices in Ireland fell by 0.3 per cent in March 2026 when compared with February, although they remained 2.3 per cent higher than they were 12 months prior.

The surge in energy costs has drawn the attention of European monetary authorities. Joachim Nagel, a chief policymaker for the European Central Bank (ECB), stated that the bank was monitoring the impact of surging energy costs extremely carefully.

The current economic pressure mirrors patterns seen during the 2022 Russian invasion of Ukraine, where surging energy prices caused a spike in inflation. The Irish government has since introduced measures to alleviate the impact of rising oil prices for businesses, including a reduction in fuel excise duties, though these measures were implemented after the March HICP figures were compiled.