The escalating conflict in the Middle East has delivered a direct and costly blow to one of Europe’s largest low-cost carriers, with Wizz Air warning the crisis will push it into the red this financial year. The airline told the City last night that it expects the turmoil to wipe approximately €50 million from its profits, citing the suspension of services to the region and adverse moves in fuel costs and currency markets directly linked to the Iran conflict.
This stark corporate warning crystallises the immediate economic fallout from the geopolitical shock, which is rippling through global energy markets, reshaping interest rate expectations, and threatening to reinvigorate inflationary pressures just as central banks contemplated easing policy.
Energy Shock Reignites Inflation Fears
The heat has turned up under global energy prices once more. Brent crude oil has risen to around $84 a barrel, close to its highest level since mid-2024, while European natural gas prices have surged, with April delivery trading above $53 per megawatt-hour on the Dutch futures market. Analysts attribute the spikes to profound market anxiety over disruptions to shipping through the critical Strait of Hormuz and to production in several Gulf states.
This surge poses a direct threat to the inflation outlook. Analysis from Goldman Sachs outlines the potential scale: they estimate the recent rise in oil prices to around $80 a barrel could boost global inflation by 0.2 percentage points and drag on global growth by 0.1 percentage points. The investment bank warned effects could be far more severe if the Strait of Hormuz were to close for an extended period, noting that a temporary rise to $100 a barrel could push global headline inflation up by 0.7 percentage points and slow growth by 0.4 points.
The inflationary peril is being felt acutely in Europe, which is more exposed to gas market volatility. Susannah Streeter, chief investment strategist at Wealth Club, noted, “The surge in gas prices is already being felt by energy customers in the UK, with big providers pulling some of the cheaper fixed-price deals.” Howard Cox, founder of the FairFuelUK campaign, reported that motorists across the UK are already seeing pump prices rise sharply, alleging “opportunistic profiteering” by retailers selling fuel bought before wholesale increases.
Central Banks Put Rate Cuts on Hold
The renewed energy-driven inflationary pressure has forced a rapid reassessment of monetary policy on both sides of the Atlantic. The prospect of imminent interest rate cuts, which had been steadily building, has now dramatically receded.
In the UK, money markets indicate just a 25% chance of a quarter-point cut from the Bank of England at its meeting next week, a sharp reversal from expectations before the conflict began. Economists are aligning with this view. Former Bank of England policymaker Michael Saunders, now of Oxford Economics, stated the Monetary Policy Committee is “unlikely to cut rates at the upcoming March meeting” due to uncertainties. He suggested that if energy prices fall back quickly, easing could resume in April or June, but a persistent surge would lead to “an extended pause.”
This shift is already translating to the high street. Major lenders including HSBC and Coventry Building Society have given notice they are increasing their fixed mortgage rates. David Hollingworth of L&C Mortgages explained, “The conflict in the Middle East has led to market expectation of higher inflationary pressure causing rate cuts to be slowed or put on hold. That pushes up the cost for lenders.” Data from Moneyfacts shows the average two-year fixed residential mortgage rate has edged up to 4.83%, with the five-year rate at 4.95%.
The European Central Bank is facing similar constraints. Three ECB policymakers, including Vice President Luis de Guindos, warned today that a prolonged and widening war could push up eurozone inflation and dampen growth. De Guindos cautioned that while the baseline assumption is a short-lived event, a longer conflict risks changing inflation expectations. The bank’s governing council meets next week, with a rate cut now appearing highly unlikely.
Across the Atlantic, the US Federal Reserve is also in a bind. Futures markets have scaled back bets on rate cuts this year, with the probability of a reduction in June falling below 60%. This reassessment comes despite fresh data showing the US jobs market remained solid in the run-up to the conflict, with initial jobless claims unchanged at 213,000 last week.
Sectoral Strains and Market Volatility
The economic shockwaves are exposing vulnerabilities in specific sectors. For Wizz Air, the impact is twofold: approximately one-third of the expected €50 million profit hit is from halted services to the Middle East, with the remainder from adverse movements in jet fuel prices and the US dollar-euro exchange rate. The warning means the airline now expects a net loss for its 2026 financial year, having previously guided for results between a €25 million profit and a €25 million loss.
The crisis has, however, created a surge in demand for one niche aviation service. Matt Purton, director of aviation services at Air Charter Service, reported that requests for private jets are “probably up 200-300% on what’s usual for this time of year” as those with the means seek exit routes from the region. “We’re going gangbusters,” he said.
Global shipping is also adjusting, with giant MCS announcing a new ’emergency fuel surcharge’ on cargo from Northern Europe and the Mediterranean to Australia and New Zealand. Meanwhile, the UK construction sector reported a faster contraction in February, with the S&P Global Construction PMI falling to 44.5. Residential building was the weakest segment, declining at an accelerated pace.
Financial markets have whipsawed in response to the uncertainty. Wall Street’s Dow Jones Industrial Average opened sharply lower, down 299 points, with pharmaceutical and consumer goods stocks leading the fallers. European markets initially followed suit but later staged a partial recovery, with the FTSE 100 shaking off losses to trade 36 points higher. The US dollar initially strengthened on safe-haven demand before paring gains.
James Bristow, portfolio manager at Templeton Global Investments, characterised the oil market move as reflecting “near term uncertainty,” noting that pre-existing surplus estimates have so far prevented even sharper price increases. He observed that European equity markets have been pricing in a “growth scare,” particularly for sectors like banks and consumer discretionary.
Despite the turmoil, some firms are pressing on with strategic plans. UK fintech Revolut has filed a new application for a banking licence in the United States, its second attempt to secure a national charter and expand services across all 50 states.
Analysts at consultancy Capital Economics argue that while parallels are being drawn with the 2022 energy shock, the current rise is smaller and the economic backdrop different. Their deputy chief UK economist, Ruth Gregory, concluded, “So unless energy prices rise further and/or a major fiscal stimulus is announced, slower interest rate cuts are more likely than interest rate hikes.” For now, the world’s central banks and corporations are battening down the hatches, assessing how long the storm from the Middle East will last.
