Iran conflict risks ‘doubly scarring’ euro zone consumers, ECB research finds

European Central Bank research released on Friday reportedly showed that Eurozone consumers already deeply affected by the Ukraine war, specifically shifted their economic outlook immediately in the wake of the Iran war.

Meanwhile, Russia’s invasion of Ukraine in February 2022 resulted in an energy crisis and inflation from which Europe had largely recovered. Afterwards, US-Israeli airstrikes on February 28 ignited a war on Iran that has led to unparalleled energy shortages.

“This evidence suggests that consumers are experiencing the war in Iran with a potential 'double scar',” the ECB researchers said in their blog.

“These two scars may reinforce each other ​and are likely to ​shape consumer expectations and ⁠behavior in the coming months, as conflicts and heightened macroeconomic uncertainty persist.”

“This makes stagflationary scenarios – rising prices and ​declining growth – ⁠more pronounced and persistent in their beliefs. And it could reinforce macroeconomic uncertainty and ultimately influence consumer spending,” the economists further added.

Keeping in view the current situation, ECB researchers sought to determine whether euro zone consumers have become more responsive to the economic fallout of such destabilization.

The ECB economist Olivier Coibion analyzed that consumers have diverted their attention to price changes when the Iran conflict began, Notably, inflation was still around the ECB’s 2% target level at the time.

Oil prices which carry a significant inflationary impact have recently fallen on hopes of a peace deal. Previously, prices have soared to $120 a barrel as a result of the ongoing geopolitical crisis.