Alwaght- The US-Israeli war on Iran and its strategic consequences, especially the closure of the Strait of Hormuz have yielded an economic quake rattling the European trade infrastructures.
The stability of the market that makes the backbone of the major economic plannings and employment strategies has fallen apart under staggering pressure of costs of energy and transportation.
The significance of the issue comes as the businesses not only face falling profit margin, but also their growth prospects are highly dark for this year.
The media reports and analyses of the experts suggest thar this instability is not simply periodic. Rather, it is a a structural disruption that rips through the supply chains and bring to a halt the driving force of employment in such big economies as Germany and Britain.
The supply chains and costs of production
Citing the negative effects of the Iran war on economic conditions, media outlets have been examining how geopolitical tensions have thrown corporate cost balances into disarray.
According to studies, before the war broke out, companies had expected reasonable increases in input costs, excluding labor. But the energy shock triggered by the conflict completely upended those calculations. France 24 reported that in the two weeks leading up to the war, firms had anticipated their selling prices and non-labor input costs would rise by an average of 3.0 and 3.9, respectively, but those figures have now climbed far higher. Véronique Riches-Flores of Pantheon Economics said France faces an extremely difficult outlook. “France is not cutting taxes because it simply can’t afford to,” she added. “French consumers are really feeling the squeeze.”
Crisis spreads to labor market and wages
The harm to the business space has directly affected the labor market. This can be analyzed at three levels:
1. Halt of employing and massive layoffs: Experts believe that continuous inflation periods have turned into a big challenge to the job market, decreasing the profit margin and hitting the employment.
In the eurozone, compensation per employee rose by nearly 2 percent in 2025, even as the unemployment rate hovered near historic lows. But the situation has now taken a turn for the worse, worse, in fact, than during the COVID-19 pandemic.
According to Global Bank's studies, the Iran war has dashed hopes for Germany's economic recovery, with forecasts for business conditions and growth in 2026 growing increasingly grim. The Bundesbank now expects Germany's economy to slip into recession in the second quarter of 2026 due to the economic fallout from the Middle East conflict. Economic pressure is mounting across Germany, with unemployment climbing to 6.4 percent, the highest rate in a decade, pandemic included.
The Guardian also reports that news of the British unemployment rate returning to 5 percent in March appears to be the latest evidence that the Iran war has crushed the economic boom. Office of National Statistics (ONS) data shows that 100,000 jobs were cut in April, the steepest drop since May 2020, while the number of job vacancies has fallen to its lowest level since early 2021.
2. Fall of real wages: According to the Financial Times, the wages of the workers in many of rich countries are falling behind prices. That is because the Iran war-caused energy shock has put the brakes on the fledgling real wage recovery. This comes as the Eurozone workers have just managed to relieve from the 2022 inflation shock impacts. According to this report, in Eurozone, the real wage growths has zeroed given the high inflation rates and if this situation continues, it will even be negative. The price of transportation and fuel and consequently other products has risen due to the costs of production while the employers cannot offer wage hikes.
Along those lines, Claus Vistesen of Pantheon Macroeconomics says he expects real wage growth across the Eurozone to hover near zero in 2026. In countries like France, which had no fiscal room to protect consumers, that figure could turn "deeply negative," he added.
British workers are facing a similar squeeze. Average earnings, including bonuses, rose just 0.1 percent in real terms in the three months through March, and with inflation set to climb in the coming months, that gain is expected to vanish entirely amid very weak hiring.
James Smith, chief economist at the Resolution Foundation, said the British government's financial support measures "weren't completely trivial", but they won't prevent the fourth round of real wage declines since 2008.
3. Weakening the bargaining power of workers: Trade unions, especially in the Eurozone, are facing a bitter reality: workers, fearing layoffs and job insecurity, have lost much of their bargaining power to demand higher wages.
As a result of the energy shock from the Iran war, workers' pay packages are now falling behind prices in a growing number of wealthy countries.
But a measure of negotiated wages, tracked by the European Central Bank (ECB), shows that unions are struggling to secure such generous terms this year, because workers have grown far more worried about keeping their jobs.
Mystery of policymakers: Recession VS. inflation
The Financial Times report about the tough economic outlook suggests that the dire job market situation has put the European policymakers in a strategic dead end.
1. Risk of recession: Reduced spending of the households in response to inflation has landed the ultimate blow on the economic growth and lead to a new wave of layoffs.
2. Risk of structural inflation: If the the wages rise to compensate for the lost purchasing power, inflation risks being entrenched for a long time.
Finally, it must be said that what is Europe dealing with these days goes beyond a simple inflation. It is crisis hitting the business stability.
With business outlooks weakening in Germany, the Eurozone's traditional growth engine, and across the rest of the currency bloc, the labor market is now sliding toward recession.
Europe's economic security has effectively become hostage to the reopening of strategic energy routes. Until stability returns to energy infrastructure, any meaningful improvement in business conditions or wages remains out of reach.
