Albania is showing considerably resilience to the latest global economic turbulence sparked by the war in the Middle East, with the country’s limited dependence on imported energy as a key buffer against the oil price shock rippling across Europe.

While the six Western Balkan economies are expected to see slower growth and higher inflation as conflict in the Middle East drives up fuel and transport costs, Albania appears better placed than many of its regional peers. Its electricity system relies overwhelmingly on domestic hydropower generation, reducing direct exposure to imported natural gas and electricity markets that have driven inflation elsewhere in Europe since 2022.

That insulation is not complete: Albania still imports oil products for transport and industry, and the recent rise in global crude prices has already begun to feed into domestic inflation. But the country’s own power generation, together with robust tourism revenues and steady domestic demand, are helping cushion the impact.

The Bank of Albania kept its benchmark interest rate unchanged at 2.5% this month, saying that higher global oil prices linked to regional conflict would likely push inflation above target temporarily, without derailing growth.

“Based on the available information, the baseline scenario forecasts suggest that the increase in oil and energy prices in world markets will cause a slight and temporary increase in inflation above the target during 2026, as well as a marginal slowdown in the pace of economic growth in the country,” central bank governor Gent Sejko told a press conference on May 6.

He added that the central bank expected the shock to “not leave long-term traces on the country's development trends”, though uncertainty remained elevated.

The central bank’s confidence reflects an economy that entered the crisis from a relatively strong position. Albania grew 3.8% in the fourth quarter of 2025, driven by household consumption, private investment and services exports, while unemployment fell to 8.3%, the lowest level recorded since the collapse of communism.

The World Bank, in its latest Western Balkans Regular Economic Report, cut its 2026 growth forecast for the region to 2.8% from 3.1%, warning that the Middle East conflict was likely to hit the region through higher import prices and weaker demand from the euro zone.

“The impact of the conflict is expected to come primarily through rising imports costs, especially for fuel and fertilisers, which are expected to push up inflation and thereby weigh on private consumption, and to widen the current account deficit, alongside additional pressure from weaker euro area demand for exports,” the report said.

Even so, the World Bank still expects Albania to outperform much of the region, projecting 3.4% growth in 2026.

“Growth in Albania is projected at 3.4%, bolstered by the continued expansion of tourism,” it said, though it pointed out the risk to Albania from higher travel costs and route disruption. 

Tourism has become a major engine of the economy, with Albania’s Adriatic and Ionian coastlines attracting record numbers of European visitors in recent years. Together with remittances and foreign direct investment, tourism has helped narrow the current account deficit and strengthen foreign exchange reserves.

The International Monetary Fund said late last year that Albania remained “one of the fastest-growing economies in Europe”, forecasting growth of 3.4% in 2026 — significantly above the average for emerging Europe and ahead of many EU economies.

The Vienna-based Vienna Institute for International Economic Studies (wiiw) also highlighted Albania’s resilience to commodity shocks, noting that countries with domestic energy production were less affected by the latest downgrade to regional forecasts.

“Others that produce a high share of their own energy – Romania, Albania – are downgraded but not much,” wiiw economist Richard Grieveson told a recent webinar. .

He added that during the 2022-23 inflation shock, “Albania was the standout country in terms of managing the inflation shock, helped by very good monetary policy but also a very high share of its own energy production for its own energy needs.”

Albania’s energy mix remains dominated by hydropower, with a cascade of dams on the Drin river supplying the bulk of domestic electricity. That has given the country a structural advantage in periods of elevated gas prices, although it also leaves it vulnerable to drought and climate variability.

To address that vulnerability, the government has accelerated efforts to diversify into solar and wind generation. International investors have backed several utility-scale solar projects in recent years, while authorities are promoting auctions for new renewable capacity.

Albania also occupies a strategic place in Europe’s energy map through the Trans Adriatic Pipeline (TAP), the final leg of the Southern Gas Corridor carrying Azerbaijani gas to Europe via Greece and Albania to Italy. Although Albania itself uses little gas domestically, officials see the route as an opportunity to develop future interconnections and improve energy security as the country integrates more closely with the European Union.

The European Bank for Reconstruction and Development (EBRD) said in its latest forecast Albania’s growth eased only slightly to 3.7% in the first nine months of 2025 and should remain near 3.5% through 2027.

It noted that “climate risks, particularly droughts affecting energy production, are partially mitigated by a more diversified renewable mix”, underlining both the benefits and limits of Albania’s hydropower-based model.

Ratings agency S&P Global Ratings reaffirmed Albania’s BB rating in March, citing its ability to withstand successive external shocks including the 2019 earthquake, the pandemic and the global energy crisis.

The agency said Albania had demonstrated “sustained macroeconomic stability” and forecast annual growth above 3% in the coming years.

The country still faces structural constraints: productivity remains low, the export base is narrow and much of the recent boom depends on tourism and construction. But for now, as the latest geopolitical crisis sends energy-importing economies scrambling, Albania’s geography and hydropower system are giving it an edge.