BRUSSELS — The war in the Middle East risks reducing EU growth by 0.4 percentage points this year and driving up inflation, creating a dreaded cocktail known as stagflation, according to the European Commission.

“It’s clear we are at risk of stagflationary shock,” the EU’s economy chief, Valdis Dombrovskis, told reporters on Friday after delivering the European Commission’s latest analysis on the economic fallout from the Iran war to eurozone finance ministers online. Inflation could increase by one percentage point, too.

“The negative consequences for growth would be even greater” if the conflict proves “more substantial and longer lasting,” the Latvian continued. “Growth could be up to 0.6 percentage points lower in both 2026 and 2027.” Brussels’ last forecast in November expected the EU’s economy to grow by 1.4 percent this year and 1.5 percent in 2027.

The war in Iran shows little sign of easing, leaving governments second-guessing just how bad the economic fallout will be. Cargo ships carrying oil from the Gulf are reluctant to brave the Strait of Hormuz for fear that Iran could target their vessels, restricting around 20 percent of the world’s oil and gas supply.

Commission President promised EU leaders last week that she would provide a toolkit of measures to help curb skyrocketing energy prices, such as boosting the bloc’s carbon market reserve and developing a €30 billion decarbonization fund. Brussels will also propose cutting taxes and reducing energy charges, Dombrovkis said after Friday’s Eurogroup meeting.

“The Commission will present proposals to mandate lower tax rates on electricity, and to make sure that electricity is taxed less than fossil fuels,” he said. “On grid charges, we’ll prepare a legal proposal to improve the productivity of grid infrastructure and allow member states to reduce grid charges for energy-intensive industries.”