Zürcher Nachrichten - War in Middle East raises stagflation fears in Europe and beyond

EUR -
AED 4.255899
AFN 72.432944
ALL 95.975736
AMD 435.816867
ANG 2.074448
AOA 1062.670738
ARS 1619.00736
AUD 1.664418
AWG 2.08594
AZN 1.965411
BAM 1.956316
BBD 2.328224
BDT 141.837422
BGN 1.980843
BHD 0.437657
BIF 3428.619402
BMD 1.158856
BND 1.478997
BOB 7.988142
BRL 6.101215
BSD 1.15601
BTN 108.040972
BWP 15.796236
BYN 3.442123
BYR 22713.57276
BZD 2.324923
CAD 1.593809
CDF 2634.079447
CHF 0.912802
CLF 0.026896
CLP 1062.021594
CNY 7.973508
CNH 7.993474
COP 4302.147686
CRC 539.144574
CUC 1.158856
CUP 30.709677
CVE 110.294576
CZK 24.480538
DJF 205.855201
DKK 7.471357
DOP 68.598395
DZD 153.754179
EGP 61.083375
ERN 17.382836
ETB 180.492
FJD 2.575846
FKP 0.865723
GBP 0.865196
GEL 3.146334
GGP 0.865723
GHS 12.646391
GIP 0.865723
GMD 84.596598
GNF 10132.71714
GTQ 8.854374
GYD 241.844852
HKD 9.068017
HNL 30.597205
HRK 7.534884
HTG 151.410602
HUF 390.142677
IDR 19561.832769
ILS 3.618985
IMP 0.865723
INR 108.642205
IQD 1514.39956
IRR 1523953.258404
ISK 143.790433
JEP 0.865723
JMD 182.078825
JOD 0.821607
JPY 183.961977
KES 150.191349
KGS 101.3402
KHR 4632.242159
KMF 492.513609
KPW 1042.936742
KRW 1735.867428
KWD 0.35505
KYD 0.96335
KZT 557.168924
LAK 24847.663027
LBP 103523.360316
LKR 363.007342
LRD 211.546727
LSL 19.601456
LTL 3.4218
LVL 0.70098
LYD 7.399984
MAD 10.804997
MDL 20.218422
MGA 4811.290172
MKD 61.619088
MMK 2433.167084
MNT 4135.923012
MOP 9.326861
MRU 46.146374
MUR 53.891919
MVR 17.904411
MWK 2004.13742
MXN 20.722312
MYR 4.585017
MZN 74.062945
NAD 19.59968
NGN 1592.476153
NIO 42.541408
NOK 11.233374
NPR 172.865355
NZD 1.98862
OMR 0.445586
PAB 1.15601
PEN 4.021461
PGK 4.991338
PHP 69.408484
PKR 322.693232
PLN 4.27397
PYG 7554.02565
QAR 4.227234
RON 5.094316
RSD 117.444213
RUB 93.641229
RWF 1690.053196
SAR 4.350082
SBD 9.330779
SCR 16.087553
SDG 696.472444
SEK 10.811603
SGD 1.483057
SHP 0.869442
SLE 28.449668
SLL 24300.638259
SOS 660.677164
SRD 43.267618
STD 23985.974368
STN 24.506572
SVC 10.114625
SYP 128.606968
SZL 19.594254
THB 37.747988
TJS 11.045462
TMT 4.055995
TND 3.406714
TOP 2.790246
TRY 51.392106
TTD 7.847393
TWD 37.073181
TZS 2978.258958
UAH 50.757111
UGX 4364.170274
USD 1.158856
UYU 47.102631
UZS 14093.718494
VES 529.022698
VND 30543.961084
VUV 138.434854
WST 3.185549
XAF 656.132945
XAG 0.016646
XAU 0.000263
XCD 3.131866
XCG 2.083341
XDR 0.816019
XOF 656.132945
XPF 119.331742
YER 276.560932
ZAR 19.76266
ZMK 10431.128864
ZMW 22.397006
ZWL 373.15108
  • CMSC

    -0.0900

    22.79

    -0.39%

  • RYCEF

    -0.5700

    15.48

    -3.68%

  • RBGPF

    -13.5000

    69

    -19.57%

  • AZN

    -0.4500

    183.62

    -0.25%

  • GSK

    0.2000

    52.19

    +0.38%

  • NGG

    0.4700

    82.53

    +0.57%

  • RELX

    -0.9000

    32.91

    -2.73%

  • BP

    0.7200

    44.29

    +1.63%

  • VOD

    0.1050

    14.585

    +0.72%

  • BTI

    0.0300

    57.95

    +0.05%

  • RIO

    -0.6500

    85.19

    -0.76%

  • BCC

    -0.7350

    71.145

    -1.03%

  • JRI

    0.0300

    11.71

    +0.26%

  • BCE

    0.1150

    25.875

    +0.44%

  • CMSD

    -0.1540

    22.586

    -0.68%

War in Middle East raises stagflation fears in Europe and beyond
War in Middle East raises stagflation fears in Europe and beyond / Photo: Alberto PIZZOLI - AFP

War in Middle East raises stagflation fears in Europe and beyond

Global energy prices have shot upwards after the US and Israel unleashed war in the Middle East, but just how far those shocks will ripple across the economy remains unclear.

Text size:

Still, the spectre of "stagflation" -- high inflation coupled with stagnant economic growth -- once again looms over the global economy in the event of a prolonged conflict.

- What is the global risk of inflation? -

The risks are still highly uncertain at this stage, as they largely depend on how long conflict lasts.

"It is still too soon to determine whether the current crisis will translate into sustained global inflation," said economist Paola Subacchi of the University of Bologna and Sciences Po in Paris.

"Much depends on how far and how long oil and gas prices rise, and whether those increases feed through broadly into production and transport costs," she added.

Bank of America economists wrote that their baseline scenario was a shorter conflict, which would limit how much further oil prices might rise and see "the shock fading in the next few weeks".

Paul Chollet, chief economist at the French banking group Credit Mutuel Arkea, said a short conflict -- such as a four- or five-week war, as US President Donald Trump has suggested -- would mean that "prices, particularly energy prices, will return to their pre-bombing levels within two months".

"That doesn't mean that you won't see inflation in the short term," he added, noting that price increases are already evident for fuels such as petrol.

But "if the conflict drags on," Chollet added, then "we could see stagflation" in Europe.

That risk would rise "if production facilities" such as oil and gas installations in the Middle East "were permanently damaged" in the fighting.

"Overall, I am concerned about low-income countries, countries with high level of debt, in this environment," International Monetary Fund (IMF) Managing Director Kristalina Georgieva said Thursday in Bangkok. "It will become so much harder for them."

- Echoes of Russia's 2022 invasion of Ukraine? -

For now, at least, most economists do not see strong parallels to 2022, when Russia's full-scale invasion of Ukraine sent gas prices surging, plunged much of Europe into an energy crisis and spiked inflation.

"2026 is not 2022," said the governor of the Bank of France, Francois Villeroy de Galhau.

"It is difficult to make direct comparisons," Subacchi said. "However, while Ukraine mainly affected Europe, a Middle East crisis could affect both Europe and Asia."

Within Europe, however, the risks are not nearly as concentrated as in 2022, when Russia oil and gas imports were a dominant source of energy in many markets.

"What made us very vulnerable in 2022 was our dependence on Russia," Chollet said. Today, much of the continent has "diversified our supply sources", he added.

Chollet also noted that energy price increases had been more modest at this stage, with the benchmark Brent crude oil price at around $90 per barrel compared to nearly $140 in 2022.

For natural gas, Dutch TTF futures contract -- the main European benchmark -- have increased notably to around 50 euros ($58) per megawatt-hour, compared to around 30 euros last week.

But prices are still much lower than in 2022, Chollet said, when "they reached as high as 340 euros per megawatt-hour".

- Which economies are most vulnerable? -

Different parts of the world will likely feel the effects of the Middle East crisis more acutely.

"When it comes to oil shocks, the US is more sensitive on inflation while Europe is more sensitive on growth. However, the sharp rise in European natural gas prices does increase its exposure," wrote Luke Templeman, a Deutsche Bank analyst.

Subacchi said that the countries most vulnerable to inflation "are those heavily dependent on oil and gas imports from the Middle East, particularly in Europe and Asia".

"The United States," she added, "is relatively shielded thanks to strong domestic energy production and the strength of the dollar".

B.Brunner--NZN