How the Middle East Conflict Is Shaping Europe’s Economy and Commercial Real Estate

What we know

As a result of the conflict, the Strait of Hormuz remains effectively closed. Although some vessels have been allowed by Iranian authorities to transit the strait, they represent only a small proportion of normal maritime traffic through the Gulf. Prior to the conflict, approximately 20% to 25% of global maritime oil and LNG travelled through the straight. To a certain extent, Europe is relatively insulated from direct supply impacts, as Gulf states account for only around 10% of LNG imports, with the remainder sourced from a diverse set of suppliers.   

Share of total European natural gas imports by origin

Source: Brugei, Moody’s Analytics, Cushman & Wakefield 

The timing of these events provides some near-term relief for Europe, as they occur at the end of winter when heating demand is declining. However, gas storage levels are seasonally lower, heightening the importance, and likely cost, of replenishing ahead of the next winter cycle. 

EU gas reserves, % of storage capacity 

Source: ICE, ASGI+, Moody’s Analytics, Cushman & Wakefield 

However, this is not to say that Europe is not affected. Oil prices globally have soared and at the time of this writing, Brent crude is still comfortably above US$100 per barrel, albeit down from recent peaks. Consequently, the immediate impacts of this reduction in oil trade have been felt at the gas pump. Fuel prices have increased across the world, by as much as 68% in some countries.  

Government responses have varied across the region. Broadly, monitoring of the energy markets has increased significantly, while some countries have introduced targeted interventions. Spain has implemented a €5bn relief plan, which includes a reduction on energy taxes as well as rebates for professional drivers, whereas Italy has sought to return extra tax revenue from fuel back to consumers. Some Central and Eastern European countries, such as Croatia and Hungary, have implemented price caps on fuel. Similarly, Germany has introduced a bill that would limit the frequency of fuel price increases, although this has yet to be enacted.  

How are markets reacting?

The full economic impacts of the conflict will take time to materialize, but high-frequency data underscores the elevated uncertainty currently prevailing. Equity markets across the world are whipsawing, moving through periods of intense selling and buying as sentiment tracks shifting headlines. The VIX Index, a forward-looking measure of expected market volatility over the next 30 days, has risen from below 20 for much of 2025 to a peak of 31 on 27 March, though retreated to 25 on 31 March. A score above 30 represents heightened volatility.  

Indexed equity market daily pricing (2 January, 2026 = 100) 

Source: Various equities markets; Cushman & Wakefield

Despite heightened volatility, global business confidence has remained resolute overall. After declining sharply in the early stages of the conflict followed by a strong rebound, the latest reading (31 March) shows confidence is starting to be eroded again as oil prices have surged. However, given the level of uncertainty over the duration of the conflict, there is no guarantee that this resilience will persist. The longer the disruption continues, the greater the risk of a material deterioration in confidence.  

Economic impact and outlook

The conflict in the Middle East has now persisted long enough to begin exerting measurable economic impacts. Again, Europe will be relatively more insulated, but impacts will be global in nature. The first channel is inflation, primarily associated with the price of fuel, then progressing on to second- and third-order effects across supply chains and production.  

While the Strait of Hormuz is mainly recognised as a major oil route, it is also a crucial outbound route for other products including petrochemicals and fertilisers, as well as an inbound route to the Middle East for food, pharmaceutical and technology supplies. Speculation on the impacts of a slowdown in trade of these products has already begun. This has been especially in relation to the shortage of fertiliser for the Northern Hemisphere spring planting season and any potential resulting crop reduction. Similar concerns are emerging around the production of packaging materials, of which petrochemicals are a major component, and, in more extreme scenarios, the risk that manufacturing plants may be forced to halt production.  

Although the extent of these impacts remains largely unknown, it is widely appreciated that even if the conflict were to end immediately, it will take time for both oil production and trade through the strait to return to pre-conflict levels. Furthermore, the economic impacts are non-linear over time—the longer the conflict endures, the greater and more widespread they will become. 

March baseline forecasts, which assumed an end to the conflict by April, now appear optimistic. Accordingly, inflation is expected to move significantly higher, which is already being reflected by recent yield increases seen in the bond market.  

Central bank reactions to these inflationary pressures are likely to vary. Drawing on lessons from past crises, policymakers will take a data-driven approach, reducing the risk of impulsive actions. However, this also raises the possibility of falling behind the curve as decisions lag incoming data. Central banks are also likely to look through the immediate, supply-driven  inflation shock and focus instead on broader transmission, particularly in services, wages and longer-term inflation expectations. While the European Central Bank has already concluded its rate cutting cycle, rising inflation risks are likely to push policy in a more cautious direction and potentially open the door to tighter policy if inflation proves persistent. In contrast, the Bank of England has more room to manoeuvre and may deem that not pursuing further rate cuts this year could be sufficient. Regardless, regional economic growth in 2026 is now likely to come in below the latest forecast of 1.5%. 

Europe inflation scenarios 

S1 = upside 10th percentile; s3 = downside 90th percentile; s4 = downside 96th percentile 
Source: Moody’s Analytics; Cushman & Wakefield

Europe real GDP growth scenarios 

S1 = upside 10th percentile; s3 = downside 90th percentile; s4 = downside 96th percentile 
Source: Moody’s Analytics; Cushman & Wakefield 

How does this affect CRE?

Our assessment is that the more enduring impacts on CRE demand will take time to become apparent and will be transmitted primarily through the macroeconomy. That said, there are potential near-term effects that will need to be navigated. The timing and the extent of these impacts will vary geographically and between sectors. Key issues we are monitoring include: 

Logistics and supply chains 

• The increase in fuel pricing, together with selective fuel shortages, will impact the ability to move goods both nationally and internationally. The fact that prices are greater for diesel than for petrol will impact the trucking industry more acutely, while increases in shipping insurance will play a role for maritime trade.  
• Together, these factors suggest that goods prices will need to increase, causing second-order inflationary effects, and could result in acute shortages of products from time to time.  
• Since the construction industry is not immune from such events, the region could experience an even greater slowdown in new supply than expected at the start of the year.  
• Greater supply chain flexibility and resilience could mitigate or delay some of the impacts. As a result of the pandemic, supply chains have moved from just-in-time to just-in-case models, with higher inventory levels, greater supplier diversification and increased adoption of digital visibility tools. 

Retail 

• Since the retail sector is highly dependent on supply chains, the impacts outlined above are also relevant for this sector.  
• High transport costs will cause the cost of goods to rise. This is over and above the direct cost of fuel. In that regard and by way of example, according to Oxford Economics, a one cent increase in the cost of fuel in the U.S. equates to US$1.5 billion in annualised consumer expenditure.  
• Overall, this is likely to lead households to adopt more conservative spending patterns, prioritising non-discretionary items and potentially rebuilding savings buffers. As a result, discretionary spending is likely to be curtailed.  

Office 

• Near-term impacts on the office sector are likely to be location specific, while more widespread impacts, should they happen, will take longer to occur. 
• Some employees may choose to work from home (WFH) more frequently, where possible, to avoid increased fuels costs—especially where public transport is not a viable option.  
• Over the longer term, any significant economic slowdown or softness in the labour market would weigh on forecast demand for space. For now, however, strong business confidence suggests this risk remains some way off.  

Capital Markets

• European CRE investment activity has begun 2026 on a relatively strong footing.  Preliminary numbers through the end of February indicate volumes of approximately US$27bn (-15%) for the first two months of the year, noting there is a lag in available data and that we expect final volumes to be higher than currently reported.  
• Investors will closely monitor central bank messaging and future interest rate movements. Given the limited property yield movement seen during the current cutting cycle, we don’t anticipate immediate upward pressure on yields. 
• Periods of geopolitical uncertainty tend to lead to wider risk premiums and more selective capital deployment. As such, deal velocity could slow temporarily as investors re-evaluate their entry and exit assumptions.   
• Longer term, such geopolitical events are likely to cause investors to reassess not only their geographical focus but to also hone their attention on more resilient assets that provide both defensive qualities and growth opportunities.  
• As clarity emerges, we expect investment activity will resume, potentially offering early opportunities for first movers.