Iran's Protracted War Leads to Stagflation in Europe, US Provides Justification for Nuclear Armament​

Iran's Protracted War Leads to Stagflation in Europe, US Provides Justification for Nuclear Armament

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Iran's choice of a protracted war to inflict pain on the United States has sparked warnings of stagflation in Europe, with high inflation and low growth fueling a surge in government debt.

The Associated Press analyzed that the premature removal of Iranian leader Khamenei prevented the US and Israel from declaring a "quick end to the war," as Iran's successor son provided the US and Israel with justification for "nuclear armament."

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On the 9th, the EU's economic chief warned that a US-Israeli war with Iran could result in a "significant stagflationary shock," raising concerns that the conflict in the Middle East could escalate into low growth and high inflation, entrenching the European economy.

At a meeting of eurozone finance ministers in Brussels that day, EU Economic Affairs Commissioner Valdis Dombrovskis said, "If the war is prolonged, leading to maritime disruptions in the Strait of Hormuz and attacks on energy infrastructure in Gulf countries, it could have a significant stagflationary impact on the global and European economies, with rising energy prices potentially spilling over into broader inflation."

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The Associated Press (AP) reported on the 12th under the headline, "The Iran War Has Become a Competition to See Who Can Withstand More Pain," adding, "Despite its complexity and global implications, the war with Iran ultimately boils down to a single question: Who can endure the longest?" and that "the surge in oil prices suggests that it could hit the global economy, Iran's most effective weapon and the United States' greatest vulnerability to continuing its campaign. The surge in gasoline prices has rattled consumers and financial markets, and has also severely disrupted international travel and shipping."

The AP reported, "Iran endures near-constant airstrikes from the United States and Israel, which it cannot defend against." The AP added, "To this day, the Islamic Republic remains in control, and the leadership of the ayatollah, killed in an early attack, is being transferred to his son. Despite widespread military losses, Iran continues to launch missiles and drones across the region."

The AP continued, "This pressure is also being applied to U.S. allies." The AP added, "Gulf Arab states, not yet involved in the war, face relentless and sometimes deadly Iranian fire targeting oil fields, cities, and vital water systems. Israel boasts of inflicting significant damage on Iran's missile program and other military targets, but Iran continues to be pounded by sophisticated Iranian missiles, which fire high-explosive bombs like buckshot over its cities. Frequent airstrike warnings have disrupted daily life, closed schools and workplaces, and created a tense atmosphere throughout the region."

The AP revealed the inside story of the US and Israel's hesitation to 'end the war' by saying, "For Iran's theocratic rulers, victory means surviving the war while still maintaining power at any cost to the country and the region," and "Iran still possesses a stockpile of highly enriched uranium and has enriched it to a purity of up to 60%, which is a technological step close to weapons-grade 90%, and Mojtaba Khamenei can overturn his father's previous statements and issue a fatwa, a religious ruling, ordering its use in weapons production." “Recent events such as Iran’s retaliatory attacks on regional energy facilities, the suspension of oil tanker operations, skyrocketing maritime insurance premiums, and temporary production halts in major exporters such as Qatar have led to immediate and sharp price increases,” Professor Bruno Colmant of the Royal Belgian Academy (former CEO of the Brussels Stock Exchange) and Professor of Economics at ULB and UCLouvain told EuRactiv on the 11th.

“These energy cost spikes are quickly spreading throughout the economy, with rising fuel prices at the pump, rising household electricity and heating costs, and rising input costs in the manufacturing sector weakening consumer purchasing power and driving up overall inflation, weakening the competitiveness of energy-intensive industries such as the chemical industry in particular, such as Germany, Italy, and the Netherlands, while steel and automobile production are under severe pressure.”

A prolific writer on economics, he recently wrote “Donald Trump: The Specters of Digital Fascism,” and told Uractiv on the 10th, “This is reminiscent of what Europe experienced after the 1973 Yom Kippur War between Arab states and Israel.” He added, “If hostilities continue for weeks or months, Europe could fall into a 1970s-style trap, with self-reinforcing inflation, chronically weak growth, stagnant job creation, and policymakers’ room to maneuver dramatically narrow between price suppression and supportive measures.”

He continued, “The current energy shock exacerbates this imbalance by inflating production and transportation costs without increasing demand, potentially subtracting 0.2-0.4% from the 2026 growth forecast (or even more in the worst-case scenario of prolonged disruption) and adding 0.5-1.5 percentage points (or more) to the inflation figure, depending on the duration of the conflict and secondary impacts such as ship rerouting and inventory reductions.”

He added, “The ECB’s inflation forecasts are already being revised upward, and there are emergency discussions about raising interest rates if downside risks to growth delay a rate cut or a second sharp decline in wages and prices occurs.” He specifically stated, “Households will face rising living costs, squeezing real disposable income, which will hit consumption. Businesses will postpone capital investment and hiring in the face of uncertainty and rising borrowing costs, and governments will struggle to meet explosive debt service payments amid widening deficits. The development of the conflict remains a crucial variable.”

Reuters reported on the 11th, "According to U.S. intelligence, the Iranian leadership has maintained that there is no imminent risk of collapse despite nearly two weeks of relentless U.S. and Israeli bombings."

The source, speaking on condition of anonymity to discuss U.S. intelligence findings, said the sources "provide a consistent analysis" that "the regime is not in danger of collapse."

Reuters continued, "With political pressure mounting from soaring oil prices, President Trump has indicated he will end the largest U.S. military operation since 2003 'soon,' but if Iran's hard-liners remain stubborn, finding an acceptable end to the war could be difficult."

The report also said, "The intelligence report highlights the unity of Iran's clerical leadership, despite the assassination of Ayatollah Ali Khamenei on the first day of U.S. and Israeli airstrikes on February 28."

Reuters specifically reported, "A senior Israeli official told Reuters that Israeli officials in private discussions also acknowledged that there was no certainty that the war would lead to the collapse of the clerical government."

Last June, just before President Trump's decision to launch a surprise attack on Iran's nuclear facilities, he clashed with intelligence chiefs over a report from the president stating that Iran's nuclear weapons were "undecided," and their stance on launching a war was at odds.

Director of National Intelligence (DNI) Tulsi Gabbard, who serves as the president's daily intelligence briefer and oversees all intelligence agencies, reported in March that the Iranian leader had not decided to develop nuclear weapons.

On June 20, when asked by reporters at the White House about Gabbard's March testimony that Iran had not decided to build nuclear weapons, Gabbard stated, "She was wrong."

Trump administration officials held a closed-door briefing for members of Congress on the 10th, and Connecticut Democratic Senator Christopher S. Murphy posted at 9:00 a.m. on the 11th, "There was no plan in the Strait of Hormuz. I can't tell you the specifics of how Iran is blocking the strait, but I can tell you that we don't know how to safely reopen it at this time. It's unforgivable. Because that part of this disaster was 100% predictable."

​The New York Times reported on the 11th, citing officials, that a confidential congressional report revealed that the US military had consumed $5.6 billion worth of ammunition in the first two days of the war, and that the cost of the war had exceeded $11.3 billion in the first six days. 

The US military budget for the Iran attack did not include the pre-operation of military equipment such as aircraft carrier bombers before the attack, and the consumption of expensive ammunition reportedly drove up the cost.

See <Trump, Intelligence Chiefs Clash Over Iran's Nuclear Weapons 'Undecided', June 21, 2025>