The Hormuz conflict: Europe facing crosswinds

Escalating tensions around the Strait of Hormuz have reignited volatility in global energy markets – posing fresh questions for Europe’s inflation, growth and investment outlook. In this PERSPECTIVES Special we examine how exposed European economies are, how this conflict differs from the 2022 energy crisis, and what this means for markets and policy. We present our latest scenarios and address the implications for investors as Europe navigates increasingly challenging crosswinds. 

Key takeaways 

• Recent disruptions to oil and gas shipments through the Strait of Hormuz have contributed to higher energy prices globally and weighed on European economic activity. While diversified supply sources and long-term contracts with suppliers reduce the risk of immediate shortages, a prolonged closure of the Strait could add to inflationary pressure, increasing downside risks to growth and potentially amplifying second-round effects on core inflation and financial markets. 
• Europe’s macroeconomic resilience is currently being bolstered by fiscal policy, enabling the region to weather some of the energy price spikes triggered by the disruptions to the Strait of Hormuz, with disparities in the exposure and sectoral impacts between Germany, France, Spain, Italy, Sweden, and Norway.
• European equity market performance is shaped by dispersion, with energy and defensives stabilising while energy‑intensive industries and cyclical sectors remain sensitive to energy price developments and geopolitical risks.
• Investors must manage a disruption whose effects depend on its length and severity, as well as on the policies from Washington, Tehran, Riyadh, and Brussels.