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 storage levels in years, creating vulnerability. Geopolitically, too, the war on Iran is diverting significant US attention and resources from Ukraine. This might leave it to Europe to step up to the plate and fill the resulting gap. In this context, probably the key question now for Europe and Asia is how long the Iran war will last. At the start of the US and Israeli military campaign on Feb. 28, it was widely expected that the bombing might last only days. Those initial assumptions by many people about duration have changed to at least several weeks, with all that means for the tragic loss of life that has ensued for increasing numbers of people. While many people have been focused on sometimes conflicting public declarations by US President Donald Trump, the military action is being conducted jointly with Israel, which is a significant, sometimes independent operator with vast military assets of its own. While the military campaign is relatively unpopular among the US public, many people in Israel regard it as necessary. There is an outside chance that even if the US decided to pause or end its bombing operations, Israel might continue for at least a short time. Prime Minister Benjamin Netanyahu’s Likud Party has been rising in the polls, and the next legislative elections in the country must take place no later than October. 

Gas prices in Europe have surged since the war began. European countries are in a tight spot. Andrew Hammond

Gas prices in Europe have surged since the war began. European countries are in a tight spot.

One key recent development that might extend the duration of the conflict is the decision by Iran’s Assembly of Experts to appoint Ayatollah Ali Khamenei’s son, Mojtaba, as the nation’s new supreme leader, after his father was killed by an airstrike in the early stages of the war. This is a signal that regime hardliners are probably still firmly in charge in Tehran, at least for now, with reformists still frozen out. Trump declared he was “not happy” with the decision. There are wider uncertainties, too. They include whether or not the military action will continue to be, largely, concentrated in Iran or potentially extend much more broadly. Certainly, Iran has been launching strikes against other states in the region since the start of hostilities, and blocking the Strait of Hormuz in an attempt to maximize international pressure on Israel and the US to stop the bombing. To date, however, the war has been largely contained, despite the tragic loss of life that continues to increase. Given this huge degree of uncertainty, an increasing number of organizations in Europe, Asia, and beyond are employing scenario planning to help them think through plausible outcomes to the military campaign and the implications. The goal is to build preparedness and resilience for what might be even more unpredictable times ahead. At the time of writing, perhaps the most likely scenario is a “regime in ruins.” This predicts a war that continues to be largely contained in Iran and ends within weeks, perhaps even before the end of this month, and a regime in Tehran that remains in place, albeit in a much weakened form that continues to decay over time. Its grip on power might be precarious, with limited military capabilities, and without widespread domestic public legitimacy it might ultimately gradually collapse from the inside. If a scenario of this kind does prevail, it is likely the shock to Europe would not be as great as the one it suffered in 2022, when Russia’s invasion of Ukraine led to an abrupt, dramatic disruption to its energy supplies. An alternative scenario of “regime change” in Iran, which has been espoused by Trump and Netanyahu, foresees a longer war lasting several months. Even then, though, it is unclear whether US and Israeli air power alone would be sufficient to realize this vision of removing the clerics in Tehran from power. At the time of writing, the worst-case scenarios for Europe and Asia are still perhaps the least likely, even if they remain uncomfortably plausible outcomes. These scenarios would combine a longer war, continuing for at least several months, with the potential for significantly more military action spreading outside Iran. Taking all of this together, the shock waves and wider uncertainty caused by the conflict are therefore creating a massive headache not only for the Middle East, but for Europe and Asia as well. While many people in these regions are understandably hoping for the best, a growing number are also preparing for less-favorable outcomes through the use of scenario-planning techniques to help build preparedness and resilience for the further political and economic unpredictability to come.

• Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.

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