The European Bank for Reconstruction lowers growth expectations and the US administration faces a dilemma regarding diesel prices

The European Bank for Reconstruction and Development reduced its growth expectations for the economies of the 41 countries it covers by 0.6 percentage points to 2.5 percent during 2026, in the second successive reduction in its expectations, with escalating pressures resulting from high food energy prices and borrowing costs, and the repercussions of conflicts on the economies of Iraq, Lebanon, Ukraine and Turkey.

The reduction comes after the bank expected in June stronger growth for these economies, while they recorded growth of 3.4 percent in 2025.

The bank warned that the risks threatening its expectations are still leaning to the negative side, in light of the multiple sources of pressure on economic activity.

“There are multiple pressure points, from diesel to the cost of wheat and the cost of borrowing,” said the bank’s chief economist, Beata Javorczyk, adding that pressures are accumulating and that there are significant downside risks to the outlook.

Iraq recorded the largest reduction in growth expectations, with the bank expecting its economy to contract by 12 percent during the current year, as a result of oil export disruptions resulting from the closure of the Strait of Hormuz, with the possibility of recording a deeper contraction if export disruptions continue until the end of the year.

Yavorchik said, “The problem in Iraq is the disruption of exports,” in light of the country’s high dependence on oil, which represents about 90 percent of budget revenues.

The pressures on the Iraqi economy come at a time when navigational disturbances through the Strait of Hormuz have limited the ability of some producers in the region to export oil, which has had a direct impact on the economies most dependent on crude revenues.

The bank's forecasts are based on the assumption that oil prices will remain in a range between $80 and $100 per barrel, but it warned that rising prices above this range may further slow growth in the economies it covers.

In Ukraine, the bank reduced growth forecasts by 0.7 percentage points to 1.5 percent in 2026, while lowering 2027 forecasts by 1.5 percentage points to 2.5 percent, due to escalating Russian attacks on energy infrastructure and transportation routes.

In Lebanon, the economy is expected to contract by 5 percent during 2026 due to confrontations with Israel, before returning to growth by 4 percent in 2027. In Turkey, 2026 growth expectations decreased to 3 percent.

The administration of US President Donald Trump faces a growing dilemma in the diesel market, with its average price rising to more than $6.50 per gallon amid global supply disruptions due to the war in the Middle East and Ukraine.

Energy Secretary Chris Wright and refiners warned that banning fuel exports could backfire by filling storage tanks and reducing refinery operating rates, putting pressure on gasoline and jet fuel supplies.

The White House denied the existence of plans to ban diesel exports for 90 days, stressing that the discussion is focused on the best ways to increase the flow of diesel domestically while maintaining flows of other products.