How the Ongoing Iran Conflict Could Impact Finances

The conflict in Iran continues to drive political and economic uncertainty across the world. How will your finances fare in the next year amid the heightened volatility?

Both the European Central Bank (ECB) and the US Federal Reserve’s economic projections, along with independent forecasters, have warned that inflation could climb toward 3% by the end of 2026 due to the escalating conflict in the Middle East. This marks a reversal from earlier expectations of steadily declining price pressures in Europe and the United States.

The main factor pushing inflation higher is the sharp increase in energy costs. Disruptions to oil and natural gas shipments, especially through critical chokepoints like the Strait of Hormuz, have driven global energy prices upward. As a result, analysts now expect consumer living costs in both regions to end the year roughly 1% above prior estimates.

While the duration of the conflict remains uncertain at the time of writing, even a short-term interruption to energy supplies could create lasting effects on manufacturing, logistics and goods prices that persist well into 2026.

Households on both continents are already beginning to feel the pinch. Drivers in Europe and the US are seeing fuel prices rise quickly at the pump. Higher transportation and production expenses are expected to flow through supply chains, leading to increased prices for food and other everyday goods throughout the year.

With summer travel season approaching, flights and holidays could also become more expensive. Airlines facing elevated fuel bills are likely to pass these costs on through higher airfares for transatlantic and European routes alike.

In the longer term, insurance premiums may face upward pressure. Motor insurers could see higher claim costs as vehicle parts and repair expenses increase, while home insurance may be affected by rising building material prices.

Remortgaging or buying a property

Lenders in both Europe and the US are adopting a more cautious approach amid the unstable geopolitical environment. Many banks have reportedly scaled back or withdrawn mortgage products in response to the increased risk.

For those looking to purchase a home or remortgage, available interest rates have generally climbed in recent weeks. Competitive fixed-rate deals that were once available below key thresholds have become scarcer, with averages moving higher.

The European Central Bank and the US Federal Reserve have both maintained a steady policy stance recently, holding key rates unchanged in their latest decisions. This cautious approach reflects ongoing uncertainty and is encouraging lenders to price new mortgage deals more conservatively.

A stable policy rate environment also makes fresh borrowing more expensive overall, while potentially improving returns on savings accounts as banks and institutions compete for deposits.

Steps to build financial resilience

There are several practical steps consumers can take to mitigate the impact of this volatility.

It is advisable to regularly review savings options and consider switching to accounts or products offering more competitive interest rates. Given the unpredictability of energy prices, locking in a fixed-rate energy contract (where available) could help protect against further increases for risk-averse households.

For longer-term planning, focusing on tax-advantaged accounts can help build resilience regardless of short-term market swings.

As the situation in the Middle East evolves, seeking professional financial advice tailored to your circumstances may prove valuable in adjusting strategies and keeping your financial plans on track amid the uncertainty.