“The war in the Middle East has had a strong impact on global financial markets". ECB experts emphasize this in their monthly bulletin, noting that overall financial conditions have tightened since the Governing Council's monetary policy meeting on February 5, 2026. "Stock markets have declined, and market interest rates in the euro area, especially short-term ones, have increased significantly."
ECB: inflation rises to 3,1% in the second quarter
But the war that broke out on February 28th did not only have an impact on the markets. The rise in energy prices caused by the war in the Middle East will push inflation “above 2% in the short term”, with a sharp rise to 3,1% in the second quarter of 2026, followed by a decline to 2,8% in the third quarter as a result of the decline in energy commodity prices implied by futures prices.
“The risks to the inflation outlook are tilted to the upside, especially in the short term,” writes the ECB, which warns: “the prolongation of the war in the Middle East could lead to a more pronounced and long-lasting increase in the price of energy goods than currently expected, pushing up euro area inflation further. The Frankfurt experts emphasize that "this increase could be more pronounced and persistent if inflation expectations and wage growth were to rise correspondingly, if the increase in energy prices were to be passed on to energy-excluding inflation to a greater extent than assumed in the baseline scenario, or if the conflict were to cause more widespread disruptions in global supply chains."
ECB: "War will reduce global GDP by 0,4% over the next 2 years."
“It is estimated that the conflict will reduce global GDP growth "In real terms, the growth in global GDP will decline by 0,4 percentage points over the next two years, reflecting the expected trajectory for energy commodity prices," ECB experts note in their monthly bulletin, which highlights how the impact of the war in Iran "has offset the positive carry-over effects resulting from stronger-than-expected growth at the end of 2025 and the moderate boost provided by the decline in US tariffs." The bulletin states that projections indicate that global real GDP growth will decline from 3,6% in 2025 to 3,3% in 2026, and then remained stable, substantially unchanged compared to previous projections".
"I risks to growth prospects are tilted to the downside, especially in the short term. The war in the Middle East represents a downside risk for the euro area economy, exacerbating an already volatile global political environment,” Frankfurt continues, highlighting how “the prolongation of the conflict could further increase energy prices for a longer period than currently expected, as well as weighing on confidence.
The effect of tariffs: exports
"I US tariffs, the past appreciation of the euro and the weakness of global demand continue to exert a brake on euro area exports“, we read in the ECB Bulletin, which underlines that in the fourth quarter of 2025 total exports of the euro area are decreased by 0,4%, mainly due to a moderate decline in goods exports, down 0,9% from the previous quarter. "This reflects a reversal of the surge in pharmaceutical exports from Ireland to the United States observed in September last year. Exports to China also declined, amid competitive pressures in that country's market. The war in the Middle East threatens to cause disruptions to trade and oil flows, with potential further negative repercussions on euro area trade”.
Panetta: "Energy tensions pose concerns about the impact on financial stability."
Also from the governor of the Bank of Italy, Fabio Panetta, comes a clear warning: “The tensions on the energy markets are worrying not only for the immediate impact on inflation and growth, but also for the possible repercussions on financial stability"In the presence of high volatility and uncertainty, pre-existing fragilities could turn into channels for amplifying shocks," Panetta said in his speech at the sixteenth annual conference of the Bank of Italy and the Ministry of Foreign Affairs and International Cooperation, discussing current geopolitical tensions, particularly the conflict in Iran.
“The ongoing conflict is already causing unprecedented disruptions in energy supply chains "Its extension to the Gulf countries has forced some of them to suspend hydrocarbon extraction, with immediate and potentially long-lasting effects on international markets. Even assuming a rapid cessation of hostilities, the return to normal production would be slow." "In addition to the technical time needed to restore extraction capacity," Panetta explained, "the time needed to reactivate the entire energy supply chain would also be necessary."
Among the many warnings, however, comes some reassurance: "I must say that despite the disappointment we feel in seeing spreads increase, we must take into account the fact that if we had faced this same shock with worse public finance conditions like those we had a few years ago, the impact would have been much more significant. We have so far been sheltered by the perception that exists in the markets that the Italian public finance conditions have improvedThis is an important condition to keep in mind for the future as well,” underlined the Governor of the Bank of Italy.
