‘Conflict of attrition’ in Iran could keep inflation high, ECB policymaker warns - Financial Times

The warning from a European Central Bank policymaker highlights a scenario in which the conflict involving Iran becomes a prolonged “war of attrition.” Unlike a swift resolution, a protracted standoff could keep disrupting global supply chains and energy markets. For the eurozone, a net importer of energy, this would mean the external shock to prices is not a temporary blip but a persistent cost-push factor. Headline inflation could therefore remain stickier than currently anticipated, complicating the ECB’s path back to its 2% target.

For financial markets, this cautionary note reinforces the “higher for longer” interest-rate narrative. If inflationary pressures persist due to geopolitical supply-side shocks, central banks may see less room to ease policy, even if domestic economies weaken. Investors should watch crude oil futures, shipping insurance costs, and the language from central bank officials for clues on how deeply this risk is being priced in—as well as any diplomatic efforts that might de-escalate the situation. The key takeaway is that geopolitical risk has a direct transmission mechanism into monetary policy and asset valuations.