Europe Braces for Stagflation as Iran Conflict Drags On

Europe faces mounting economic pressure from the Iran conflict as oil prices stay above $100 per barrel due to the closed Strait of Hormuz, triggering a potential political crisis across the continent. EU deputy finance ministers met in Athens on Monday, April 27, 2026, to discuss cushioning the bloc from economic fallout while avoiding a debt crisis, with finance ministers set to continue the debate in Brussels next week. The standoff between Washington and Tehran, which began with US-Israel attacks on Iran, shows no signs of resolution after recent talks were canceled at the last minute. European Commissioner for Economy Valdis Dombrovskis warned the bloc is now facing "stagflation" and that spring economic forecasts will be revised downward in May, with Germany and Italy both already downgrading their full-year projections. The economic shockwave is already rippling into everyday costs, with energy prices cascading into food, transport, and housing, hitting lower- and middle-income households hardest, creating political vulnerability for pro-EU governments ahead of key elections. France faces the most severe risk, where the far-right National Rally could seize the Élysée Palace in upcoming elections, while Bulgaria's Kremlin-friendly ex-president Rumen Radev won victory on April 20 and Romania's coalition teeters on the brink of collapse. In Germany, the far-right Alternative for Germany is eyeing gains in September's Saxony-Anhalt state election, having already expanded beyond its traditional eastern base. EU leaders reviewed proposals including electricity tax cuts, social schemes for vulnerable households, VAT reductions, and investments in energy grids, but many member states remain constrained by pandemic-era debt loads with limited fiscal space for sweeping intervention. Meanwhile, US President Donald Trump faces his own congressional pressure, with the 60-day deadline under the War Powers Resolution expiring on May 1. Trump initiated the military operation against Iran on March 2 and notified Congress within the required 48 hours, but the resolution requires congressional approval for military operations lasting beyond 60 days. He can extend by an additional 30 days once, which analysts consider the most likely outcome, though several Republicans have indicated they may reconsider their positions on authorizing continued military action. The midterm elections on November 3 will see all 435 House seats and 35 Senate seats contested, and Trump's approval ratings have suffered from high fuel prices, with even typically loyal MAGA supporters expressing criticism of the war. French President Emmanuel Macron, meeting with Greek Prime Minister Kyriakos Mitsotakis in Athens, warned that Europe faces a "unique moment" where the US, Russian, and Chinese presidents are "dead against the Europeans," calling for urgent EU-level responses including spreading out repayment of post-pandemic recovery debt.