The American-Israeli attack on Iran has been an unmitigated humanitarian, political and economic disaster. And it could get a lot worse.
After his bombing campaign failed to achieve regime change in Tehran or reopen the Strait of Hormuz, a critical energy choke point that Iran has effectively closed, US President Donald Trump has deployed thousands of additional US troops to the Middle East.
These include 6,000 sailors and military personnel aboard a carrier strike group led by USS George HW Bush; more than 1000 paratroopers from 82nd Airborne Division; and an amphibious assault unit led by USS Tripolicomprising about 2,200 marinas. They join 50,000 or more American troops that were already in the region at the start of the war.
Will Trump actually put them in place?
The evidence strongly suggests that he will.
Similar massive buildups of military power preceded the US attack on Venezuela in January and the initial US-Israeli attack on Iran on February 28. Trump’s latest message — refusing to rule out the deployment of ground troops while suggesting, without evidence, that negotiations with Tehran are “it goes very well” – is also eerily reminiscent about what happened just a few weeks ago.
Furthermore, the predictably disastrous fallout from the attack on Iran so far—including rising energy prices, rising US government borrowing costs, and falling stock markets—definitely failed to dissuade Trump from launching his bombing campaign. Why do you think the inevitable catastrophic consequences of a ground invasion would be any different?
European capitals, however, feature more worried for the almost opposite possibility: that, instead of escalating the conflict, Trump simply declares victory and leaves it up to them to reopen the Strait of Hormuz.
But as Alicia García Herrero, a senior fellow at Bruegel, a Brussels-based think tank, points out, a US withdrawal would likely empower its arch-rival China to reopen the strait through diplomatic channels — which is another reason, she noted, why “the US will have to escalate.”
If the US were to withdraw from Iran without opening the Strait, “China would be the biggest winner ever, because China would open the Strait of Hormuz and everyone would have to accept that,” she said.
Growing in the ground
Assuming the US actually launches a ground invasion, what would actually happen? And what would be the impact on Europe?
Nobody really knows.
This is mainly because it is not clear where the ground troops will be deployed I DO. Would they be tasked with, for example, capturing the uranium at the nuclear facility in Isfahan? Or they would try to capture – and hold – Iran’s main oil refining facilities Kharg Island? Or both? Or neither?
What is almost certain, however, is that a ground invasion – which is likely to be carried out in coordination with regional allies, including Saudi Arabia AND United Arab Emirates – would condemn Europe to a prolonged period of stagflation, with even higher oil and gas prices causing higher inflation and weaker output.
European Central Bank”CoRe“The projection that the war will see eurozone inflation rise to 2.6% and growth fall to 0.9% this year will prove too optimistic, given that its forecast assumed the conflict would remain.”relatively containedA series of inflation-suppressing (and investment-killing) ECB rate hikes would also be inevitable.
“It would be extremely negative,” said Jacob Funk Kirkegaard, another senior associate at Bruegel. Iran, he said, would likely retaliate by destroying the liquefied natural gas (LNG) facility at Qatar’s Ras Laffan — immediately knocking out a fifth of the world’s LNG supply.
Oil prices will also rise as markets begin to “price in the long-term curtailment and destruction of essential Gulf energy facilities,” he said. European government borrowing costs – already in the highest levels since the crisis of the last decade in the eurozone – would also increase.
“Once you get to the ground troops, I think it’s a different story,” he said.
Philipp Lausberg, a senior analyst at the European Policy Center, said the diversification of energy supplies from Europe after Russia’s full occupation of Ukraine in 2022, along with the recent expansion of US LNG export capacity, could mean that a US ground invasion could also be less damaging than the energy shock following Moscow’s attack on Kiev.
He also noted that the deployment of ground troops may be less important than the question of how long the war lasts. “I think the question is less what effect escalation has, but what effect extension has,” he said.
However, Lausberg also warned that a ground invasion could cause shortages of specific refined petroleum products, particularly jet fuel, for which European airlines rely on the Persian Gulf to meet roughly a quarter of their demand.
Other possible impacts of a prolonged or escalating conflict include an acceleration of the deindustrialization of Europe, particularly in Germanyand a surge in support for European populist parties that demand governments provide financial support to households and businesses.
“It could really cause political turmoil,” Lausberg said. EU governments, many of which already have debt levels well beyond the bloc’s 60% debt-to-GDP limit, would also face “a trade-off between protecting households versus fiscal discipline”, he said – which, in the long term, could even cause markets to question the eurozone’s financial stability.
Lausberg also warned that an ongoing conflict could catalyze other potential crises. For example, investors may eventually view power-hungry AI data centers as financially unsustainable, sending the US stock market – which is heavily dependent on AI-driven power – crashing.
“We have talked about it AI bubble for a long time and this could be the last straw,” he warned.
Nuclear fear
Experts, however, played down the chances that a ground invasion would hasten the ultimate disaster—namely, the use of nuclear weapons.
“Israel is the only nuclear-armed state in the region, and the likelihood of Israel using nuclear weapons against American soldiers is not (that) high,” said Susi Snyder, director of programs at the International Campaign to Abolish Nuclear Weapons, a Geneva-based Nobel Peace Prize-winning group.
More likely, Snyder said, is that a ground invasion would represent the start of a “long-term process of occupation” similar to the disastrous 2003 US-led invasion of Iraq.
“We’ve been here before,” she said. “And we know how that turned out.”
Kirkegaard echoed this assessment. “The problem is, once you’ve done that, how are you going to get these bodies out again?” he said.
It’s a question that, unfortunately, Trump may have to answer very soon.
Summary of news from the economy
Inflation in the Eurozone increases. The eurozone’s total rate rose to 2.5% this March, official data released on Tuesday showed, as the US-Israel war against Iran fueled fears of sustained price rises across the single currency area. The increase in inflation marked a significant increase from the 1.9% year-on-year price increase in February. However, it fell below the 2.7% rate predicted by analysts in a Reuters survey. Core inflation, which strips out volatile energy and food prices, fell from 2.4% to 2.3%. Bert Colijn, an economist at ING, a Dutch bank, said the rise was “entirely due to higher energy prices”, adding: “The longer the disruption lasts, the greater the likelihood of broader increases in headline and core inflation.” Read more.
