ING: Prolonged U.S.-Iran conflict could trigger major energy shock in eurozone

The eurozone is likely to suffer more than any other major global economy if a prolonged conflict between the United States and Iran unfolds, according to a report by ING. The bank’s economists said the region is particularly vulnerable because it imports nearly all its oil and a significant portion of its gas.

“The American-Israeli attack on Iran could not have come at a worse time,” ING economists said. “The eurozone economy had just emerged from a long period of stagnation, with tentative signs of recovery. That recovery has already been undermined by uncertainty over U.S. trade tariffs under President Donald Trump. Now the region could face an energy shock on top of a trade shock.”

ING warned that a sharp rise in energy prices and potential supply disruptions could evoke memories of the energy crisis from late 2021 through 2023. Two key differences, however, make the situation distinct: Europe does not need to cut ties with a major energy supplier like Russia, and the crisis comes at the end of winter rather than the start.

A prolonged conflict would also complicate the European Central Bank’s policy choices. Inflation in the eurozone’s service sector remains stubbornly high, and an oil shock could further drive overall inflation.

At the same time, growth prospects are weakened by uncertainty over U.S. import duties and higher energy costs. According to ING, “A rate increase to fight inflation is only possible if the eurozone economy demonstrates resilience.”

A previous ECB analysis found that a 14 percent increase in oil prices could push eurozone inflation up by 0.5 percentage points and reduce economic growth by 0.1 percentage points. The analysis did not account for potential disruptions to supply chains.

ING economists said that higher energy costs, disrupted logistics, and a general crisis of confidence could significantly slow global trade volumes in the event of a prolonged conflict. However, they stressed that many uncertainties remain, with daily shifts in military and geopolitical scenarios. The key question is whether the conflict ends within days or escalates into a prolonged war engulfing an entire region.