Just business as usual? Sanctions and inflation: The economic consequences of the US-Iran conflict

Europe is paying for the conflict over energy, interest rates, and competitiveness

While Europe is less dependent on oil and gas from the Persian Gulf than some Asian economies, it remains closely integrated into global energy markets. Rising world market prices therefore translate into higher European import costs. This effect was clearly evident in 2026: Inflation in the eurozone rose to 3.3 percent in August, up from 2.9 percent in July. This renewed price pressure was largely energy-driven.

The European Central Bank faces a difficult conflict of objectives. Energy-driven inflation weakens purchasing power and can destabilize expectations, while higher interest rates do not improve energy supply. Nevertheless, a central bank cannot simply stand idly by and watch the second-round effects unfold. This conflict thus prolongs the period of increased financing costs and puts a particular strain on interest-rate-sensitive sectors such as construction, real estate, and capital-intensive industries.

Germany faces an additional structural competitive challenge. The chemical, metal processing, glass, paper, logistics, and parts of the mechanical engineering sector are highly sensitive to energy and transportation costs. Companies compete with producers in regions that have access to cheaper, locally sourced energy. A temporary price shock can therefore trigger permanent location changes if companies relocate investments or cease modernizing their facilities.

The right European response is not complete isolation. A more economically sensible approach is a combination of diversified import sources, efficient networks, strategic reserves, faster permitting processes, and flexible demand. Crucially, resilience should not be confused with autarky. Complete self-sufficiency would be prohibitively expensive in many sectors. Instead, robustness arises from multiple supply chains, interchangeable intermediate products, and the ability to quickly switch to alternatives in the event of disruptions.

Freight rates are turning a regional crisis into a global supply chain problem

The conflict is not only driving up energy costs, but also the cost of all physical trade. Since the start of the war, the cost of container shipping from Asia to the United States has at times doubled. On the route from China to the American East Coast, spot rates reached around $10,948 per 40-foot container in September. This was more than four times higher than at the beginning of the escalation.

The increase has several causes. Bunker fuel is becoming more expensive, insurance premiums are rising, and ships have to plan longer or riskier routes. Shipping companies are factoring in surcharges for war, uncertainty, and potential delays. At the same time, importers are bringing forward orders because they expect further price increases or supply disruptions. This accelerated demand is further reducing the available cargo space.

The effects extend far beyond the Persian Gulf. Containers and ships are not where they are expected according to the normal schedule. Turnaround times are lengthening, empty containers are lacking, and port calls are being delayed. Even if only part of the fleet is tied up or delayed, the effectively available transport capacity decreases. Therefore, freight rates can rise even on routes geographically far removed from the conflict.

For industrial companies, the transport costs alone are only part of the burden. Longer lead times increase the need for working capital and safety stock. Unreliable deliveries can halt production lines, even if the missing item has only a low value. Companies with complex bills of materials, a single qualified supplier, and limited transparency regarding sub-suppliers are particularly vulnerable.

A return to normal operations would not happen immediately, even after a ceasefire. Mine clearance, safety inspections, reinstatement of insurance coverage, and repositioning of ships all take time. Therefore, companies should not assume that a political agreement will normalize logistics costs within a few days. Markets react to signals of peace faster than actual supply chains.

Asia bears the greatest immediate supply risk

Many Asian economies rely heavily on the Middle East for their oil and gas imports. South Korea, Japan, India, and other countries therefore face a dual challenge: securing their energy supplies while simultaneously balancing their relations with the United States, China, and the Gulf States. Military support for Washington can be costly domestically and economically, while neutrality creates security tensions.

For import-dependent countries, high oil prices worsen the trade balance. Demand for dollars increases, national currencies come under pressure, and imported inflation rises. Central banks can respond with higher interest rates, but this risks weaker investment and employment. Countries with regulated fuel prices must decide whether to pass the shock on to consumers or absorb it through budget cuts.

China occupies a special position. It is a major energy importer, an important trading partner of Iran, and at the same time a strategic rival of the United States. Beijing has an interest in low energy prices and stable trade routes, but does not want to fully comply with American pressure mechanisms or be drawn into a direct conflict. Chinese diplomacy therefore aims at de-escalation, while Washington wants to prevent any potential material or technological support for Tehran.

The allegations surrounding satellite data, targeting information, and Chinese actors demonstrate how quickly commercial technology can become embroiled in security disputes. Even if the Chinese leadership denies direct support, the lines between state agencies, companies, and other organizations remain complex. For markets, even the mere suspicion of Chinese involvement increases the risk of secondary sanctions and further fragmentation of global trade.

The Gulf states are simultaneously winners, victims, and mediators

At first glance, oil- and gas-exporting Gulf states might seem to benefit from higher prices. In reality, their situation is contradictory. Rising prices increase potential revenues, but attacks on facilities, blocked sea lanes, and higher security costs jeopardize export volumes. Tourism, air travel, financial services, and real estate markets are suffering from a growing regional risk premium.

Saudi Arabia, the United Arab Emirates, and Qatar have invested heavily in economic diversification in recent years. This is precisely why a protracted conflict affects them not only as energy producers. International companies are postponing investments, skilled workers are reassessing the security situation, and insurers are raising premiums. Prestige projects and transformation programs require stable capital inflows and reliable planning – both of which are hampered by regional escalation.

At the same time, these states possess diplomatic significance. They can provide communication channels, facilitate prisoner exchanges, and support technical agreements on shipping. However, their credibility depends on not being perceived as merely an extension of one party to the conflict. Their economic self-interest clearly favors de-escalation, but in terms of security policy, they remain dependent on American capabilities.

Jordan and other neighboring states also face high risks, even though they have only limited influence over the causes of the conflict. Attacks on bases, refugee movements, reduced investment, and expensive energy can strain fragile budgets. The economic damage is therefore not distributed according to political responsibility, but rather according to geographical proximity, import dependency, and institutional resilience.

Washington's power politics are encountering the limits of its own domestic policy

In the United States, the conflict is increasingly becoming a dispute over military authority, costs, and political responsibility. Congressional votes on limiting presidential powers demonstrate that the military strategy lacks full domestic political support. Even within the Republican Party, there is resistance to an open-ended commitment in terms of both time and funding.

This debate is economically relevant because wars alter expectations regarding government spending, deficits, and inflation. Additional defense spending can support individual sectors but increases the federal government's overall funding requirements. At the same time, higher oil prices act like a tax on consumers. When fuel and transportation become more expensive, less income remains for other expenditures. Therefore, the overall net economic effect can be negative despite increased arms production.

President Donald Trump's harsh rhetoric is intended to deter and force concessions from the other side. However, threats of complete economic isolation or widespread destruction also increase the risk premium. Markets do not clearly distinguish between tactical communication and actual intent. The more extreme the wording, the greater the likelihood that companies will prepare for an escalation scenario.

Added to this is the conflict over media access and reporting. Restrictions on journalists, accusations of endangering national security, and political attacks on the media can impair the quality of information. Reliable information is crucial for financial markets, however. Where independent confirmation is lacking, rumors, misjudgments, and abrupt price movements increase. Transparency is therefore not only a democratic value but also essential economic infrastructure.

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Israel and the United States do not pursue identical goals

Israel views Iran's military capabilities and nuclear program primarily as an immediate security threat. The United States must also consider global energy prices, alliances, domestic costs, and competition with China. This can lead to differing priorities. Washington may be interested in a limited agreement that opens Hormuz and lowers oil prices. Israel might consider such an agreement insufficient if Iranian capabilities persist.

This divergence affects the credibility of diplomatic solutions. An agreement is only economically valuable if relevant actors do not undermine it through parallel operations. Markets must therefore assess not only whether Washington and Tehran agree, but also whether Israel, regional partners, and allied groups support de-escalation.

Political criticism in Israel and among some American Republicans shows that a compromise can incur high domestic political costs. This is precisely where a classic negotiating problem lies: an agreement may be beneficial for the economy as a whole, but appear to powerful groups as a strategic defeat. The more emotionally and ideologically charged the conflict, the more difficult it becomes to politically realize economic advantages.

Artificial intelligence makes precision possible – and errors scalable

Modern warfare utilizes satellite imagery, sensor data, pattern recognition, target prioritization, and software platforms. Artificial intelligence can analyze large datasets more quickly and support military decisions. However, it does not eliminate poor input data or unclear accountability. If data is inaccurate, outdated, or manipulated, automated analysis can spread the error with greater speed and apparent objectivity.

Technology companies face increasing liability and reputational risks. Software originally developed for logistics, data integration, or civilian analytics can be used for military purposes. This puts startups and platform providers in geopolitical dependencies that affect their funding, export opportunities, and customer relationships. Systems that aggregate target information or control critical infrastructure are particularly sensitive.

The conflict is simultaneously accelerating investments in drone defense, autonomous systems, cyber defense, and satellite-based reconnaissance. This creates growth opportunities for defense and technology companies, but also new dependencies. States will attempt to exert greater control over data, chips, cloud infrastructure, and AI models, either nationally or through alliances. This is likely to further exacerbate the fragmentation of global technology spaces.

Solar energy is being transformed from a climate project into security infrastructure

The energy crisis demonstrates that renewable energies not only serve climate protection. They also reduce dependence on imported fossil fuels and mitigate the impact of geopolitical shocks on electricity prices. In the first six months of the conflict, European solar power plants theoretically avoided gas imports worth more than €30 billion. While this sum does not translate into a corresponding reduction in all consumer bills, it illustrates the macroeconomic value of existing generation capacity.

The security gains, however, depend on grids, storage, and flexibility. Solar power plants do not generate electricity at all times. Without grid expansion, battery storage, load management, and dispatchable power plants, additional generation cannot fully compensate for bottlenecks. Renewable energies therefore do not replace all fossil fuel reserves, but they do reduce the amount of imported fuels and thus vulnerability.

Iran is also expanding its solar energy capacity because its electricity supply is suffering from growing demand, a backlog of investment, and fuel shortages. This seems paradoxical at first, given the country's enormous gas reserves. However, reserves in the ground do not guarantee a reliable electricity supply. Extraction, transmission lines, power plants, price regulation, and maintenance all determine whether energy is actually available.

Europe faces an industrial policy challenge. A rapid expansion of renewable energies increases resilience, but can create new dependencies on solar modules, inverters, batteries, and critical raw materials. The right answer is not to produce every component domestically. A more sensible approach is diversified procurement, combined with strategic production in particularly critical sectors and sufficient reserves of grid components.

Three development paths determine prices and investments

The most favorable realistic scenario would be a stable ceasefire with a gradual reopening of the Strait of Hormuz. In this case, oil prices and insurance premiums could fall significantly. Physical normalization would still be delayed, however, because mine clearance, repairs, and the resumption of regular shipping schedules take time. Companies would not fully reduce their safety stockpiles initially, as long as the political causes remain unresolved.

A second scenario is a frozen conflict with recurring attacks and limited negotiations. This scenario could be particularly debilitating for the global economy. It prevents the maximum shock but keeps energy, insurance, and financing costs permanently elevated. Investments are postponed while businesses and governments continually finance new interim solutions. The costs are less dramatic than in a total blockade but accumulate over months and years.

The third scenario would be a broad regional escalation with severe damage to energy facilities, a prolonged blockade, and greater involvement of allied states. In this scenario, oil prices would likely remain significantly above previous peaks, with new strategic reserve releases and a global recession becoming probable. Import-dependent emerging economies, energy-intensive industries, and highly indebted countries would be particularly vulnerable. Financial markets would favor safe-haven assets, while risk premiums and dollar demand would rise.

A linear development is unlikely. The conflict could oscillate between negotiation and escalation. This very uncertainty makes decision-making difficult. Companies should therefore not try to predict a single course of events. Planning with thresholds is more sensible: What measures will be triggered by specific oil prices, transport times, insurance conditions, or supply disruptions? Resilience arises from prepared responses, not from perfect forecasts.

Companies must finally treat resilience like capital

For companies, the conflict is not an abstract geopolitical issue, but a question of cost structure, liquidity, and supply capability. The first step is to assess actual exposure. This includes not only direct suppliers in the Middle East, but also energy shares, transport routes, subcontractors, insurance terms, currency risks, and dependence on individual ports or raw materials.

Traditional procurement metrics are insufficient. A low-cost supplier can prove costly overall if they offer long lead times, high risk of disruptions, or no alternative route. Companies should therefore consider total costs under stress. This includes additional warehousing, potential production downtime, express shipping, financing costs, and contractual penalties. The cheapest standard operating procedure is not automatically the most economical solution over an entire crisis cycle.

Contract drafting is also gaining importance. Price adjustment clauses, force majeure provisions, alternative delivery locations, and clear responsibilities for war risk surcharges can prevent disputes. Insurance policies should be reviewed not only for premium amounts but also for exclusions and termination rights. The question of whether coverage remains in effect if the operating area is reclassified is particularly critical.

The operational response must remain differentiated. Not every part justifies large safety stocks. Critical components with long lead times require a different strategy than standardized mass-produced goods. Multi-source sourcing, regional suppliers, modular product design, and better data on sub-suppliers can reduce risks. Digital transparency is only valuable if the data is current and relevant to decision-making.

States must pay for security without subsidizing inefficiency

Governments face the challenge of relieving the burden on households and businesses without completely overriding price signals. Blanket fuel subsidies are politically attractive but expensive and often poorly targeted socially. They encourage high consumption and delay adjustments. Direct transfers to low-income households are more economically efficient, provided the administration can implement them quickly.

Strategic reserves require coordination. Uncoordinated releases can depress prices in the short term but create uncertainty about future inventory levels. Reserves should buy time until supply is redirected, demand is adjusted, or diplomatic progress is made. They are not a substitute for long-term diversification.

Industrial policy should focus on genuine systemic bottlenecks. These include energy infrastructure, grids, transformers, certain semiconductors, critical raw materials, and maritime capacity. Broad subsidizing all domestic production would be expensive and could weaken competition. The goal need not be national autarky, but rather a resilient combination of domestic capability, reliable partners, and alternative supply routes.

Foreign policy and economic policy can no longer be treated separately in this conflict. Sanctions must be examined for their effectiveness, potential for circumvention, and humanitarian consequences. Military measures require a realistic assessment of their second- and third-round economic effects. Diplomatic proposals should not only contain political rhetoric but also verifiable steps regarding shipping, insurance, payment systems, and energy exports.

The true cost will only become apparent after the war

The most visible costs of the US-Iran conflict are destroyed facilities, lost ships, lives lost, and high oil prices. However, the greater economic damage may lie in the decisions made under the pressure of persistent uncertainty. Investments are not being made, skilled workers are leaving the country, supply chains are becoming more expensive, and governments are diverting funds from education, infrastructure, and innovation to security and subsidies.

The conflict is accelerating a development that had already begun: the global economy is organizing itself less according to maximum efficiency and more according to political reliability. Energy, technology, logistics, and financial flows are being assessed in terms of security policy. This increases resilience in some areas, but makes production more expensive and reduces the global division of labor. The resulting losses in prosperity occur gradually and rarely appear in a single calculation.

Nevertheless, a clear perspective emerges. Military superiority can destroy infrastructure and weaken the opponent economically. However, it cannot change the geography of the Strait of Hormuz or enforce political stability. Similarly, Iran can inflict high global costs, but it will pay for this with its own isolation, capital loss, and declining living standards. Neither side has achieved a clean economic victory.

The most rational strategy therefore lies in a verifiable de-escalation that links maritime security with gradual economic concessions. A viable agreement would have to make violations sanctionable without automatically reverting to war with every incident. It would have to involve regional actors while simultaneously protecting humanitarian and civilian economic flows.

Until then, Hormuz remains a lever through which regional power moves global prices. The crucial lesson for businesses and states is to discover dependencies not only in times of crisis. Energy efficiency, renewable energy generation, flexible logistics, robust partnerships, and financial buffers are not additional costs for rare exceptions. They are the price of economic viability in a world where a narrow sea lane can determine inflation, growth, and political stability.

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