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24 March 2026 / Essay
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Copy LinkTensions in the Middle East are more than an energy price shock for Germany: they are the first stress test for government support for industrial electricity prices.
Energy costs have been a central driver of Germany’s economic weakness since 2022. Industrial power costs are still two to three times above those in China or the US. This is an important reason why output in manufacturing is still nearly 10% below its level at the end of 2019. Energy-intensive industries are even recording a decline of around 20%.
The Iran war and the resulting rise in oil and gas prices reveal the weaknesses of Germany’s industrial electricity price support scheme.
Only a month ago, the year 2025 was seen as a turning point. Germany emerged from its 2023–2024 recession, with GDP up 0.2% that year, supported by higher public spending. A €500 billion fund to modernize infrastructure and decarbonize the economy lifted expectations for 2026 and beyond. Government expenditure in 2025 rose by around 7% versus 2024, with energy and utilities-related outlays surging to around €107 billion, up from just €6 billion a year ago.
The German government has relied on subsidies
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