Economists warn that prolonged fighting could trigger inflation and slower global growth.
London, United Kingdom — Global financial markets fell sharply on Monday as the ongoing conflict involving the United States, Israel, and Iran intensified concerns about oil supply disruptions and rising inflation, according to market data and economists. Analysts say the escalation, which began on Feb. 28 with airstrikes on Iranian targets, is already sending shockwaves through energy markets and investor sentiment worldwide.
The benchmark FTSE 100 dropped by nearly 200 points, a decline of roughly 2%, in early trading, reflecting investor concern over economic uncertainty linked to the conflict. Across Europe, Germany’s DAX index also fell, posting a loss of about 2.3%.
Market analysts said the downturn reflects fears that the conflict could disrupt oil production and shipping routes in the Middle East, a region responsible for a significant share of global energy exports.
Renowned economist Philippe Aghion warned that a prolonged war could significantly slow global economic expansion. Speaking to RTL radio, Aghion said an extended conflict could echo the economic shock of the 1973 oil crisis, when surging oil prices triggered inflation and recession across many economies.
“If the fighting lasts for weeks, oil prices could exceed $150 per barrel,” Aghion said. “An extended and broadening conflict will undoubtedly hinder global expansion.”
According to reporting by journalist Richard Gaisford, writing for the Al Jazeera website, central banks may be forced to tighten monetary policy to contain inflationary pressures. He noted that the Bank of England could raise interest rates if energy costs surge further, a move that would increase borrowing costs for businesses, homeowners, and governments.
The cost of UK government borrowing has already climbed sharply since the conflict began, reflecting market volatility and expectations of tighter financial conditions.
The conflict began on Feb. 28 when the United States and Israel launched airstrikes targeting Iranian officials, military sites, and infrastructure, according to reports from regional authorities and media outlets. Iran has since retaliated with attacks on Israeli targets and U.S. military assets in several regional locations.
Officials say the escalation has affected the production and transport of oil and natural gas across parts of the Middle East, heightening concerns about potential supply disruptions in global energy markets.
Iranian authorities have also warned that oil prices could reach historic levels if hostilities intensify further. The warnings included the possibility that energy infrastructure in Iran and across the Persian Gulf region could become targets if the conflict widens.
Background
The Middle East accounts for a substantial portion of the world’s oil exports, with key shipping routes passing through strategic waterways such as the Strait of Hormuz. Disruptions in this region have historically led to rapid increases in global energy prices.
The 1973 oil crisis remains one of the most prominent examples, when supply restrictions triggered severe inflation and economic slowdown in many Western economies.
Official Statements
Economists and analysts have urged coordinated policy responses if the conflict persists. Aghion said Western economies, including the United States and Europe, may need to work together to mitigate inflation and stabilize markets.
Meanwhile, financial observers say central banks are closely monitoring energy price movements and geopolitical developments.
What Happens Next
Authorities and market analysts say the trajectory of the conflict will play a decisive role in shaping economic outcomes. If hostilities continue or expand, energy prices could rise sharply, increasing pressure on global supply chains and household costs.
Governments and central banks are expected to assess potential policy responses in the coming weeks as markets react to developments in the region.