Prolonged Oil Crisis Could Hurt German Equities

DAX 40 Pressured by the Oil Shock

German equities are moving back into a phase of heightened macro uncertainty amid rising energy prices and no signs of easing geopolitical tensions between the U.S., Israel and Iran. Given its energy-intensive manufacturing sector and continued reliance on imported fuels, Germany remains one of the most exposed euro area economies to the current energy crisis.

Germany continues to rely on energy imports for roughly 75% of its total consumption, leaving the economy exposed to external supply shocks and price volatility. While this dependence broadly reflects trends across the European energy market, Germany’s energy-intensive industrial base makes it particularly sensitive to disruptions. ¹

Although renewable capacity across Europe is expanding, Germany’s energy transition has shown signs of losing momentum in early 2026, reinforcing the need to maintain significant imports of fossil fuels, particularly natural gas and oil.

The disruption to flows through the Strait of Hormuz has amplified vulnerabilities that emerged after Europe reduced its dependence on fuel imports from Russia. This has left the region more sensitive to global supply shocks and price volatility.

In this environment, the DAX 40 has retreated almost 10% from its pre-war high of 25,405, underperforming the S&P 500, which has declined by around 5%.

The DAX 40 has tested its key support level of 22,950 when Brent crude briefly approached $120 per barrel, raising the question of whether German equities can withstand a prolonged period of elevated energy prices.

Why the Conflict May Not be Short-Lived

Market optimism has intermittently resurfaced on hopes that tensions in the Middle East will ease, and energy flows will normalise. However, several factors suggest the conflict could persist longer than investors currently anticipate.

Iran’s retaliation appears focused less on achieving a decisive military victory and more on sustaining economic pressure by disrupting critical trade routes and widening regional instability. The effective closure of Hormuz has been driven not only by direct threats but also by the withdrawal of war-risk insurance, leaving shipowners unwilling to transit the passage even in the absence of active attacks. Therefore, supply disruptions can prolong well beyond any formal ceasefire.

At the same time, Trump’s efforts to build a broad international coalition to secure shipping lanes have delivered no progress. Many Asian economies have adopted a cautious stance, while European governments have shown little appetite for military involvement. Diplomatic uncertainty has been reinforced by the postponement of a planned summit between Donald Trump and Xi Jinping, highlighting how geopolitical priorities are moving toward crisis management rather than conflict resolution.

Proposed solutions such as releasing crude from strategic petroleum reserves, easing sanctions on Russia, or deploying naval escorts to protect tanker traffic may offer short-term relief to energy markets. However, these measures from the U.S. fail to resolve the core issue, a conflict that lacks a clearly defined end objective, is not supported by international coalition, and involves Israel whose strategic war aims appear to extend beyond the scope of what the United States has publicly outlined.

Why Sustained High Oil Prices Are a Major Risk for Germany

For Germany’s industrial economy, elevated energy prices represent a significant headwind. Manufacturing sectors such as chemicals, autos and heavy engineering rely on competitively priced energy. Sustained increases in oil and gas costs can compress margins, reduce output and weaken export competitiveness.

Higher fuel prices also tend to feed through into transport, fertiliser and food costs, reinforcing inflationary pressures across the broader economy. Historical evidence suggests that major energy shocks often coincide with periods of weaker growth or outright recession in developed markets. For Germany, which remains deeply integrated into global trade, this combination raises the risk of stagflation.

In addition, rising household energy bills can erode real incomes and dampen consumption, further weighing on domestic demand and corporate earnings expectations. These macro pressures are particularly significant for the DAX 40, given its high concentration of energy-intensive industries such as industrials, materials and automotive manufacturers.

The ECB Easing Cycle May be Over

Market expectations for the interest rate outlook in Europe have changed sharply since the surge in oil and gas prices. Expectations that policymakers could cut rates toward the end of the year have largely faded, giving way to a more cautious outlook.

While investors are concerned that higher energy costs could reignite inflationary pressures across the euro area, the European Central Bank is widely expected to keep rates unchanged at its meeting on the 19th of March.

Interest rate futures, which provide a real-time gauge of investor expectations for central bank policy are now pricing in the possibility of one to two additional 25-basis-point hikes by the end of 2026, reflecting concerns of rising inflation expectations. ²

Source: TradingView. DAX 40 Daily Price Chart as of 18 March 2026.

Quantifying the oil shock risk for the DAX 40

The macro transmission from energy shocks to equity performance has been historically measurable. Research from the IMF suggest that every 10% increase in oil prices can add roughly 0.4 percentage points to inflation while reducing economic growth by around 0.15 percentage points. ³ In an environment where Brent crude remains above $100 per barrel, this implies a meaningful deterioration in the euro area’s growth-inflation mix.

For Germany’s export-oriented economy, the impact can be amplified. Higher oil and gas prices could compress industrial margins, weaken manufacturing output and reduce global demand for goods, all of which are key drivers of earnings for companies within the DAX 40. Historically, major energy shocks have coincided with double-digit drawdowns in European equity benchmarks, particularly when accompanied by tighter monetary policy.

The outlook for the DAX 40 is increasingly tied to developments in global energy markets and geopolitical risk. If the closure of the Strait of Hormuz gets protracted and oil prices remain elevated, Germany’s growth outlook could deteriorate further, raising the probability of a deeper correction.

If oil prices remain above $100 per barrel for several months, the combined effect of slower growth and rising inflation could trigger a break below the key 22,950 support. Such breakout could lead to a decline toward 20,500 in the months ahead.

Professional investors looking for magnified exposure to DAX 40 may consider Leverage Shares +3x Long Germany 40 ETP or -3x Short Germany 40 ETPs

Footnotes:

1. Climate Action Tracker: Investors pour into gold ETFs as Iran conflict adds to the funds’ appeal, as of March 3, 2026.
2. Morningstar: Will the ECB Raise Interest Rates Amid the Iran War? as of 13th of March 2026.
3. Business Review: IMF warns oil price spikes could slow global growth and drive inflation, as of 9th of March 2026.