Iran conflict a risk to economic growth, EBRD president says

By Jonathan Spicer and Libby George

ISTANBUL/LONDON, March 5 (Reuters) - The widening U.S.-Iran war is a risk to economic growth, the president of the European Bank for Reconstruction and Development told Reuters on Thursday, but said the fallout depends on how long the conflict lasts.

EBRD President Odile Renaud-Basso told Reuters in an interview in Istanbul that the conflict "can reduce risk capital" for the region - but that apart from Lebanon, the fallout thus far was contained.

"For the time being, it's limited," she said, adding that "the risk is on the downside."

Last week, the EBRD pegged growth for the 41 countries it covers at 3.6% for this year and 3.7% in 2027, boosted by spending on big infrastructure projects in Europe, but offset by U.S. tariff and trade uncertainty.

The war has effectively closed the Strait of Hormuz, a key shipping artery, sending crude prices up some 12% - and sounding an alarm for many of the energy-importing countries in which the EBRD works.

Renaud-Basso said that the length of the closure of the Strait of Hormuz and the duration of oil and gas price spikes were key, but that high global gas stocks could help cushion the blow.

The exception, however, is Lebanon, which she said is "very much at the core" of current turbulence. Lebanese group Hezbollah launched rockets and drones into neighbouring Israel on Monday, prompting ongoing full-blown hostilities with Israel.

"There we can expect quite a significant impact on the economic situation and broadly," she said.

In Ukraine, Renaud-Basso said international funding for the year is unlikely to change despite the new conflict.

But more broadly, she said an extended spike in global energy prices could also drive inflation higher - making it tricky for central banks to cut interest rates.

"This is a new challenge in terms of monetary policy. I think that we need to be careful," Renaud-Basso said.