AIB Warns Ireland's Inflation Could Hit 7% if Strait of Hormuz Blockade Persists

AIB warns that Ireland's inflation could accelerate to 7% this year if the Strait of Hormuz remains blockaded and oil prices increase further. The bank's latest economic outlook indicates muted Irish economic growth due to geopolitical uncertainty and the unwinding of last year's export front-loading.

Under a severe scenario where commodity prices surge from a prolonged blockade through 2026, Irish inflation could peak at 6-7% by year-end, nearing the 2022 peak of 9.5%. This extreme outcome would involve oil prices reaching $150 a barrel and natural gas prices more than doubling to €100 per kWh. While Ireland has somewhat reduced its reliance on fossil fuels, AIB notes it remains highly exposed to price shocks, requiring renewed focus on decarbonization and short-term energy supports.

AIB Chief Economist David McNamara highlights that renewables constitute about 16% of Ireland’s energy output, below Europe's 25% average. The domestic economy is set for growth, though weaker than previously forecast. Modified domestic demand growth is projected to fall from 4.9% last year to 2.7% this year and 2.6% in 2027, with downside risks. Real wage growth this year will be offset by inflation, leaving households marginally worse off.

New home completions are forecast to rise to 39,000 units this year (from 36,300 last year), and to 41,000 and 45,000 in 2027 and 2028, driven by apartment construction. McNamara notes the global macro backdrop has dimmed since November 2025, with Middle East conflict threatening growth, though the Irish economy has been robust despite expected cooling in 2026 and 2027.