Red alert: Oil prices soar, threatening to freeze the economy

The attack on Iran has triggered a financial panic: oil prices are rising and inflation threatens to return. Discover the direct impact on your life and your wallet.

The US attack on Iran has sent a shock wave of panic through global financial markets. Oil prices have soared, rekindling fears of a new wave of inflation that could stifle Europe's fragile economic recovery.

The market response to the military escalation in the Middle East has been immediate and brutal. Geopolitical uncertainty has translated into widespread risk aversion, but the most direct and worrying impact has been felt in the energy market, the lifeblood of the global economy.

Oil on Fire: The Ghost of $130

In a matter of hours, crude oil prices soared. Brent crude, the international benchmark, recorded its biggest daily jump since 2022, far surpassing the $74 per barrel mark. West Texas Intermediate (WTI), the benchmark in the United States, followed a similar path.

Analysts warn that this could be just the beginning. The attack not only affects a key oil-producing region but also puts the Strait of Hormuz, a vital transit point through which one-fifth of the world's oil flows, at risk. In addition, direct attacks on energy infrastructure, such as the South Pars gas field, have been reported.

> "In the worst-case scenario, global oil prices would soar to around $130 a barrel, pushing US inflation to nearly 6% this year," notes an analysis by Oxford Economics, a scenario that would also have devastating repercussions for Europe.

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The ECB's Dilemma: Frozen Interest Rates

This oil shock couldn't have come at a worse time for the European Central Bank (ECB). The immediate consequence for monetary policy is clear: plans for an imminent interest rate cut are, at the very least, on hold.

Just before the attack, the ECB was preparing to make its first rate cut in June, believing that inflation was finally coming under control. Now, the central bank faces a nightmare scenario known as stagflation: a combination of economic stagnation and rising inflation.

This situation forces the ECB to maintain high interest rates for longer to combat the new inflationary pressure. This has direct consequences for citizens and businesses:

* More expensive mortgages: The Euribor, the benchmark rate for most variable-rate mortgages, will remain high, slowing the fall in mortgage payments.

* Restricted credit: Access to financing for businesses and households will continue to be expensive and difficult, which will hinder investment and consumption.

* Slower growth: Tight monetary policy in an environment of global uncertainty threatens to push the Eurozone back into recession.

An Opportunity for the 'Global Euro'?

Amid the crisis, some see a strategic opportunity. ECB President Christine Lagarde has suggested that the instability caused by erratic US policies could be the moment to promote a "global euro."

The logic is that, with the US dollar subject to Washington's political volatility, other countries might seek refuge in the euro. To this end, Lagarde suggests the EU should issue more common debt, for example to finance defense, thereby creating more euro-denominated "safe assets" that can compete with US Treasury bonds.

However, this is a long-term view. In the short term, the reality is that the attack on Iran has unleashed a potential downward spiral for the European economy. Geopolitical instability fuels inflation, forcing the continuation of a restrictive monetary policy, which in turn stifles growth, making the continent even more vulnerable to future crises. The "new era of instability," warned of by the central banks themselves, appears to have arrived.