Europe is now openly admitting it faces a stagflation shock, but this crisis did not suddenly appear because of the Iran war. The war merely accelerated a collapse that was already well underway due to years of catastrophic policy decisions. Valdis Dombrovskis, European Commissioner for Economy and Productivity, described the situation as a “stagflationary shock” as oil prices surged again on fears the conflict could drag on and destabilize energy markets further.
I have warned repeatedly that Europe was heading into a depression long before a single missile flew in the Middle East. Germany was already in industrial decline. Manufacturing across Europe was already contracting. Energy costs had already exploded after the sanctions war against Russia. The politicians destroyed their own energy security and then pretended green energy fantasies would somehow replace reality.
Now they act shocked that oil moving above $110 a barrel is feeding inflation again. Reuters reported that G7 borrowing costs have surged from roughly 3.2% to nearly 4% since the war began as markets fear inflation will remain entrenched. The International Energy Agency also warned global oil supply could fall short of demand by 1.78 million barrels per day this year because of the conflict.
This is precisely how stagflation unfolds. Economic growth stalls while the cost of living continues rising. The average person gets crushed from both directions simultaneously. Wages cannot keep pace with food, fuel, transportation, and housing costs. Washington Post noted US inflation has already climbed to 3.8%, the highest since 2023, largely driven by energy prices. Europe faces even worse structural problems because its economy is far more dependent on imported energy and heavily burdened by regulation and taxation.
The political class keeps pretending this is temporary. That is exactly what governments said during the 1970s oil crisis before stagflation spiraled into years of economic misery. The difference now is governments are entering this crisis carrying record sovereign debt levels. They cannot raise rates aggressively without detonating their own bond markets.
The stagflation wave was already in place before the first bombs fell because governments destroyed productive economies through sanctions, climate mandates, reckless spending, and endless monetary manipulation. The Iran conflict merely exposed how fragile the global economy had already become.
Our Economic Confidence Model has been projecting this European stagflationary collapse for years because the ECM is not merely an economic model, it tracks shifts in public confidence and capital concentration. Europe entered a declining confidence wave years ago as capital began fleeing toward the United States. The 2026 Panic Cycle targeted Europe specifically because of war risk, sovereign debt instability, and the collapse in industrial competitiveness. This is why the euro continues weakening structurally despite short-term rallies. Capital no longer trusts European leadership. Once confidence breaks, governments respond with more regulation, more taxation, more debt, and eventually capital controls, which only accelerates the decline further. That is exactly what unfolded during previous sovereign debt crises throughout history from late-stage Rome to the collapse of socialist regimes in Eastern Europe.
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