Middle East shockwaves for Europe and Asia

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The economic and political shock waves from the war on Iran will be felt the most in the Middle East. Outside that region, however, key parts of Europe and Asia are also being significantly affected. Both Europe and Asia have high degrees of vulnerability, and not only because of their geographical proximity to the Middle East; both regions are also dependent on large amounts of energy imports. The list of nations with economies in which energy imports help fuel a large share of gross domestic product includes France, Germany, the UK, South Korea, India, Taiwan, Japan, and China. To be sure, there could be some winners, too. They include large net-exporters of energy outside of the Middle East, including Norway, whose freedom to sell overseas is largely unaffected by the conflict. However, the overall impact will be negative in the short-to-medium term, with the shocks in Europe easily the largest since Russia’s invasion of Ukraine in 2022, a war that has just entered its fifth year. The shock waves from the conflict with Iran will affect Europe’s weak economic recovery in 2026, fueling inflation, especially if the US and Israeli military campaign is prolonged and the Strait of Hormuz continues to be blocked. Gas prices in Europe have surged since the war began. European countries are in a tight spot because although summer is approaching, they need to build up gas reserves for next winter and imports of Russian gas are being phased out as a result of the war in Ukraine. The region is on track for its lowest........

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