It is reductive to measure the costs of a war solely through aggregate economic statistics. Many will use this conflict to reinforce long-held positions, whether in energy policy or in international alliances. But wars and revolutions are moments of rupture: there is always a before and an after.
The war in Iran, triggered by a joint attack by Israel and the United States, once again creates turbulence in the Western world and exposes fractures in the relationship between America and its Western allies. The unilateralism of the American administration and its inability to accept criticism or listen to close allies make it an increasingly unpredictable and, in some cases, embarrassing partner. This distancing, also at the level of values, continues to widen the gap between the United States and Europe.
From an economic and financial perspective, the conflict reintroduces systemic risks in an unnecessary way. A systematic risk, global and non-diversifiable, simultaneously affects financial markets and economic activity. After the start of the war, Brent rose rapidly to around 80 dollars, a value that is nevertheless still below the peaks recorded over the last five years. The only way to mitigate a risk of this nature is to accept higher costs and, inevitably, weaker economic performances, through a reduction in strategic exposure to oil.
Even so, the reaction of the markets has been far more moderate than would be expected in a prolonged and violent conflict in that region. This suggests that a large proportion of investors believe it will be a relatively short war, followed by a return to some degree of normality in global energy markets.
European vulnerability is evident in the scale of its energy imports. The weight of energy in the European Union’s imports clearly depends on the price of oil: in 2022 it represented around 23% of total imports; in 2024 only 16%; and all indications suggest that in 2025 it will have been even lower. Most of these imports correspond to oil, which means that the international price of this resource is what most conditions European and also Portuguese economic performance. This large variability also shows that only very significant and prolonged movements are capable of producing material aggregate economic effects.
The economic impacts of a war are above all devastating for the populations directly affected and, to a lesser degree, for companies with specific commercial exposure. For the rest of the world, the effects are distributed across three levels: capital markets, economic activity, and public finances.
In addition to the rise in the price of oil, uncertainty in the markets increases volatility, reduces the value of assets that are sensitive to energy costs, and pushes investors towards defensive assets.
The transmission mechanisms through which wars in the Middle East affect economic activity operate through energy prices. Higher energy prices deteriorate external balances and reduce the resources available for consumption and investment.
Governments may feel the need to cushion the impact of price increases for consumers and users, while at the same time weaker activity may reduce tax revenues, creating additional pressure on public finances.
For countries such as Portugal, which depend on imported energy for more than 70% of their needs, these shocks are felt quickly. But, as previous conflicts in the Middle East demonstrate, these impacts are generally measured in tenths of growth rather than in automatic recessions. Only persistent shocks, combined with other adverse factors, produce recessions in countries that are otherwise growing normally.
The issue of inflation illustrates this distinction well. An increase in the price of oil causes a one-off rise in energy prices, but this is not truly inflation; it is merely a temporary change in the price of a single good, oil. Only when this shock persists and begins to affect expectations, wages, and the prices of other goods and services does it turn into underlying inflation, potentially requiring more restrictive monetary responses from the European Central Bank.
Wars generate insecurity and restrain investment decisions, even far from areas subjected to bombings and military combat. In the European case, there is also the additional fear that the United States may drag its allies into a broader conflict. This increases both economic and diplomatic anxiety.
It is reductive to measure the costs of a war solely through aggregate economic statistics. Many will use this conflict to reinforce long-held positions, whether in energy policy or in international alliances. But wars and revolutions are moments of rupture: there is always a before and an after. The costs of this war may manifest themselves above all in the erosion of transatlantic relations, an impact that is difficult to quantify but has the potential to significantly reduce future well-being.
João Borges de Assunção, Professor at CATÓLICA-LISBON