LONDON — Countries focused on reopening the Strait of Hormuz will meet for a security summit in the near future, which the U.K. has offered to host. More than 30 nations including United Arab Emirates, the U.K., France, Germany, Italy and the Netherlands have now signed a joint statement agreeing to work on “appropriate efforts” to safeguard the major trade route. A British official, granted anonymity because they are not authorized to speak on the record, said Tuesday the U.K. wanted to help “build this coalition and develop momentum” in order to “open a route safe through the Strait of Hormuz, and provide that reassurance to merchant shipping.” They added that cooperation between like-minded partners would include a security conference on the topic, which could be hosted in London or Portsmouth, the home of the Royal Navy on the south coast of England. NATO chief Mark Rutte and British PM Keir Starmer now appear to be leading the push to restart traffic through the Strait, despite skepticism from other allies. The same British official discussed options for securing the channel, such as deploying autonomous minehunting systems from a mothership in the Gulf, while conceding this would not be possible while the current level of hostilities continue. They expressed confidence that “we will see different nations coming forwards with different offers to support us”and “we will be able to find in the right conditions a coalition that will be able to provide that assurance to the merchant shipping industry.”

Ivo Daalder, a former U.S. ambassador to NATO, is a senior fellow at Harvard University’s Belfer Center and host of the weekly podcast “World Review with Ivo Daalder.” He writes POLITICO’s From Across the Pond column. Like many, I used to believe that former U.S. President George W. Bush’s decision to invade Iraq in 2003 was the biggest strategic mistake America had made, at least since the Vietnam War. That is, until now. U.S. President Donald Trump’s decision to join Israel in a war against Iran is a far bigger strategic error, and one with far bigger strategic consequences. The reasons for this are many, ranging from the immediate impact on the region and the global economy to the longer-term upshots for Russia and China, as well as the repercussions for U.S. alliances and America’s global standing. That much is already clear — and we’re only three weeks in. Let’s start with the similarities: Much like the Iraq War, the war against Iran began based on the presumption that the regime in power would swiftly fall and that a new, more moderate and less antagonistic one would take its place. In both instances, the idea was to remove the greatest destabilizing threat in the Middle East — Saddam Hussein’s regime in the initial case, the theocratic dictatorship in Tehran in the latter — through the swift and decisive use of military force. But while Bush understood that defeating a regime required ground forces, it seems Trump simply hoped that airpower alone would suffice. As a result, Hussein’s regime fell swiftly — though Bush did vastly underestimate what would be required to rebuild a stable, let alone a democratic, Iraq in its place. But the Iranian government, as U.S. intelligence officials themselves have testified, “appears to be intact” despite Israel killing many of its key political and security leaders through targeted strikes. Focusing on the region at large, Bush’s misjudgment eventually contributed to a large-scale insurgency, which strengthened Iran’s influence in Iraq and the wider Middle East. In contrast, Trump’s miscalculation has left in place a regime that, aside from assuring its own survival, is now singularly focused on inflicting as much damage on the U.S. and its allies as it possibly can. Iranian drones and missiles have already attacked Israel and the Gulf states, targeted critical energy production facilities and effectively closed the Strait of Hormuz, which hosts one-fifth of the world’s oil and gas export transits. The Salalah oil storage fire in Oman is pictured on March 13, 2026. | Gallo Images/Orbital Horizon/Copernicus Sentinel Data 2026 Less than a month in, the world is now witnessing the largest oil and gas disruption in history. And as the fighting escalates to include gas and oil production infrastructure, the global economic consequences will be felt by every single country for months, if not years, to come — even if the conflict were to end soon. The damage that has already been inflicted on the global economy is far greater than the economic consequences of the Iraq War in its entirety. But that’s not all. Geopolitically, the U.S.-Israel war with Iran will also have far greater reverberations than the war in Iraq ever did. For one, the Bush administration spent a lot of time and effort trying to get allies on board to participate in and support the war. It didn’t fully succeed in this, as key allies like Germany and France continued opposing the war. But it tried. Trump, by contrast, didn’t even try to get America’s most important allies on board. Not only that, he even failed to inform them of his decision. And yet, when Iran responded predictably by closing the Strait of Hormuz, the U.S. president then demanded allies send their navies to escort tankers — despite the U.S. Navy so far refusing to do so. And while it’s true that Iraq left many U.S. allies — even those that joined the war, like the U.K. — deeply scarred, Iran has convinced U.S. allies they can no longer rely on the U.S., and that Washington is now a real threat to their economic security. That, too, will have a lasting impact well beyond anything the war in Iraq did. Finally, the fact remains that when Bush decided to invade Iraq, Russia and China were still minor global powers. Russian President Vladimir Putin was only just starting his effort to stabilize the economy and rebuild Russia’s military power, while China had just joined the World Trade Organization and was still a decade or more away from becoming an economic superpower. In other words, America’s blunder in Iraq occurred at a time when the strategic consequences for the global balance of power were still manageable. Trump’s Iran debacle is occurring at a time when China is effectively competing with the U.S. for global power and influence, and Russia is engaged in the largest military action in Europe since the end of World War II. A woman sifts through the rubble in her house in Tehran, Iran on March 15, 2026 after it was damaged by missile attacks two days before. | Majid Saeedi/Getty Images Both stand to benefit greatly. Russia is the short-term winner here. Oil prices are rising, generating more than $150 million per day in extra income for Moscow to feed its war machine. The U.S. is relaxing its sanctions against Russia in a vain attempt to stall prices from ballooning at the pump. All the while, Ukraine is being left to contend with Russia’s missile and drone attacks without the advanced defensive weaponry that’s now being used to protect Israel and the Gulf instead. China, meanwhile, is watching as the U.S. diverts its military forces from the Indo-Pacific to the Middle East, where they will likely remain for months, if not years. These forces include a carrier strike group, a Terminal High Altitude Area Defense anti-missile system from Korea, and a Marine Expeditionary Force from Japan. And while a disruption in oil and gas supply will be a short-term problem for Beijing too, China’s rapid transition to renewables and close alignment with energy-rich Russia will leave it well placed to confidently confront the future. Bush and Trump both came to office determined to avoid the mistaken wars of their predecessors. Nevertheless, they both embarked on military adventures fed by a hubristic belief in American power. But while the U.S. was strong enough — and its adversaries still weak enough — to recoup much of the damage inflicted by Bush’s war, the war unfolding in Iran today will leave behind an America that will have lost much of its global power, standing and influence, destined to confront rising adversaries all on its own.

LONDON — The U.K. government said Friday that it will allow the U.S. to fly missions from British bases in order to bomb Iranian missile sites that are targeting shipping in the Strait of Hormuz. A Downing Street spokesperson said ministers meeting Friday afternoon had “confirmed” that Prime Minister Keir Starmer’s agreement for the U.S. to use British sites for defensive operations includes actions to “degrade the missile sites and capabilities being used to attack ships in the Strait of Hormuz.” “They reaffirmed that the principles behind the U.K.’s approach to the conflict remain the same: the U.K. remains committed to defending our people, our interests and our allies, acting in accordance with international law and not getting drawn into the wider conflict,” Downing Street added. The spokesperson said the U.K. is still working with partners to develop “a viable plan” to safeguard shipping in the Strait of Hormuz. Details on any proposals have been scant so far. Since the beginning of the Iran conflict, Starmer has been keen to stress the U.K. is on its own path, one not dictated by the U.S. This is the first time the U.K. has confirmed that U.S. bombers can use two British bases to hit Iranian missile sites that are targeting commercial shipping in the Strait. Previously Britain had said the U.S. could use its bases to target Iranian missile sites that were attacking the U.K.’s allies in the Gulf, without citing commercial shipping. Downing Street officials insisted on Friday night that defending shipping falls within the existing remit for cooperation with the U.S. that Starmer agreed on March 1. The prime minister has repeatedly called this remit “specific and limited” and stressed it is only for a “defensive” purpose. The two British bases being used by American bombers are RAF Fairford in England and Diego Garcia in the Indian Ocean. The decision will put Starmer under renewed pressure from critics of Britain’s involvement in the U.S.-Israeli war with Iran as he continues to insist — despite the Friday statement — that the U.K. is not being drawn into the wider conflict.

President Donald Trump lashed out at America’s NATO allies again on Friday, raging at their refusal to join the U.S.-Israeli war with Iran and help reopen the Strait of Hormuz. “Without the U.S.A., NATO IS A PAPER TIGER!” the U.S. leader wrote on his Truth Social site, accusing allies of first sitting out the fight against a “Nuclear Powered Iran,” and then “complain[ing] about the high oil prices they are forced to pay.” The solution would be to open the Strait of Hormuz, Trump wrote, “a simple military maneuver … with so little risk,” but allies “don’t want to help.” “COWARDS,” he concluded. “[W]e will REMEMBER!” The outburst came following Thursday’s European Council, where national leaders struck a cautious tone in emphasizing de-escalation and resisting involvement in a conflict with no apparent end in sight. Spain’s PM Pedro Sánchez even described the war as illegal — underscoring the size of the breach with Washington. Since the U.S. and Israel launched strikes on Tehran on Feb. 28, France, Germany, Italy and the U.K. have resisted sending warships to the Gulf. On Thursday they backed a joint statement with partners Japan and Canada supporting “appropriate efforts” to ensure safe passage through Hormuz — but only once the fighting stops, as German Chancellor Friedrich Merz stressed. French President Emmanuel Macron is sounding out allies on a potential U.N.-backed framework to secure shipping, while NATO Secretary-General Mark Rutte said he remains “confident” that the allies will find a way to restore traffic through the chokepoint. Trump’s attack follows days of mounting pressure on Washington, both military and economic. Earlier this week he warned NATO allies that they face a “very bad future” if they fail to help open the Strait of Hormuz, and in January mocked allies for allegedly shying away from the toughest fighting over a decade ago in their joint mission in Afghanistan. “They’ll say they sent some troops to Afghanistan,” Trump told Fox news on Jan. 22. “And they did, they stayed a little back, a little off the front lines.” At the time, British Prime Minister Keir Starmer called the remarks “insulting and, frankly, appalling.”

BRUSSELS — United Nations Secretary-General António Guterres said Thursday there are “reasonable grounds” to believe both sides in the U.S.-Israel conflict with Iran may have committed war crimes, as attacks and retaliatory strikes on energy facilities intensify. Speaking exclusively to POLITICO on a visit to Brussels before Thursday’s European Council summit, Guterres said: “If there are attacks either on Iran or from Iran on energy infrastructure, I think that there are reasonable grounds to think that they might constitute a war crime.”  Israel attacked Iran’s South Pars natural gas field on Wednesday, then Tehran launched a retaliatory strike on a major energy complex in Qatar. Beyond that, Guterres said the growing civilian casualties left both sides in the conflict open to possible war crimes charges. “I don’t see any difference. It doesn’t matter who targets civilians. It is totally unacceptable,” he said. Representatives for the U.S. and Israeli governments did not immediately respond to requests for comment on Guterres’ remarks. America and Israel began a bombing campaign on Feb. 28, killing Iran’s supreme leader and sparking ongoing retaliatory missile-and-drone attacks from Tehran on sites across the Middle East. Having called for deescalation in the region, Guterres appeared to blame Israel for driving the conflict forward, and called on U.S. President Donald Trump to persuade Israeli leader Benjamin Netanyahu to bring it to an end. “The war needs to stop … and I believe that it is in the hands of the U.S. to make it stop. It is possible [to end the war], but it depends on the political will to do it,” Guterres told host Anne McElvoy for an episode of the EU Confidential podcast publishing Friday morning. “I am convinced that Israel, as a strategy, wants to achieve a total destruction of the military capacity of Iran and regime change. And I believe Iran has a strategy, which is to resist for as much time as possible and to cause as much harm as possible. So the key to solve the problem is that the U.S. decides to claim that they have done their job. “President Trump will be able to convince … those that need to be convinced that the work is done. That the work can end,” Guterres added. The secretary-general also attributed America’s decision to launch strikes on Iran to Israel. “I have no doubt that this was something that corresponds to Israel’s strategy … to draw the United States into a war. That objective was achieved. But this is creating dramatic suffering in Iran, [and] in the region, even in Israel. And it is creating a devastating impact in the global economy and whose consequences are still too early to foresee. So, we absolutely must end this conflict,” he said. But finding an off-ramp might prove difficult, and relations between the U.N. and the Trump administration remain frosty.   Asked if he had spoken with Trump since the conflict began three weeks ago, Guterres responded emphatically: “No, no, no … I speak with those I need to speak to. But this is not a soap opera.” He claimed, however, to have been “in contact with all sides,” including with the Trump administration, since hostilities spread across the Gulf.  “It’s vital for the world at large that this war ends quickly,” Guterres said. “This is indeed spiraling out of control and the recent attacks represent an escalation that is extremely dangerous.” Trump said on his Truth Social site that the U.S. had not authorized the attack by Israel on the South Pars site, and that Israel had “violently lashed out,” raising questions about how much influence the U.S. has over its ally. “My hope is that the United States will be able to understand that this has gone too far,” Guterres said. The conflict was primarily benefitting Russia, Guterres added, with Moscow welcoming the distraction from its own war on Ukraine. “Russia is the biggest beneficiary of the Iran crisis,” Guterres said. “Russia is the country that is gaining more with what’s happening in this horrible disaster. Russia is already the winner.” Meanwhile, European leaders, including U.K. Prime Minister Keir Starmer and German Chancellor Friedrich Merz, have said they won’t be sending ships to the Persian Gulf in response to Trump’s appeal for help to open the Strait of Hormuz. France has said it will only contribute support vessels “when the situation is calmer.” Guterres applauded the restraint shown by the Europeans, despite Trump’s anger at their refusal to actively support the war or help reopen the Strait of Hormuz, a critical maritime artery that Iran has largely sealed off, driving up global energy prices. “I think these countries made their own reading of the situation, and I believe they took a decision not to get too much involved, knowing that the most important objective is the deescalation,” he said. Listen to the full episode of EU Confidential on Friday morning.

BRUSSELS — The EU’s top diplomat warned leaders at a summit on Thursday that the bloc could easily become entangled in a toxic conflict in the Middle East that could be difficult to extricate itself from. High Representative Kaja Kallas used a speech at a European Council in Brussels to caution against joining an open-ended war against Iran led by the U.S. and Israel. “Starting war is like a love affair — it’s easy to get in and difficult to get out,” she said, according to two diplomats briefed by leaders on the closed-door talks, which are only attended by presidents and prime ministers. At the same time, Kallas reiterated the importance of the EU’s defending its interests in the region but said there was little appetite for expanding the remit of its Aspides naval mission, currently operating in the Red Sea. U.S. President Donald Trump has called on allies — including European nations such as France, Germany and the United Kingdom — to help escort civilian vessels through the Strait of Hormuz. Oil and gas prices have spiked in recent days after Tehran closed the strategic waterway to shipping, stranding oil and gas tankers serving fossil fuel-exporting nations like Saudi Arabia and Qatar. “I wonder what would happen if we ‘finished off’ what’s left of the Iranian Terror State, and let the Countries that use it, we don’t, be responsible for the so called ‘Strait?’ That would get some of our non-responsive ‘Allies’ in gear, and fast!!!,” Trump wrote on Truth Social on Wednesday. Kallas’ team did not immediately respond to a request for comment.

BRUSSELS — NATO chief Mark Rutte on Thursday said he was “confident” allies would find a way to restart traffic through the Strait of Hormuz blocked by Iran after it was attacked by the U.S. and Israel. “Allies … are intensely discussing amongst each other [and] with the United States … the best way forward to tackle this huge security issue,” Rutte told reporters in Brussels. “I’m confident that allies as always will do everything in support of our shared interest as we always do — so we will find a way forward.” The U.S. president has called on European partners to help secure the trade artery — a request most have flatly rejected. As a result, Donald Trump has slammed NATO allies, warning he could reconsider the U.S. role in the alliance, even while some members like Estonia have volunteered equipment. On Tuesday, the U.S. president claimed he no longer needed European support for the operation. Rutte, who has previously come under fire for claiming Trump’s war has “widespread support” among allies, on Thursday again praised the U.S. for weakening Iran’s military, including its ballistic missile and potential nuclear capabilities. “What the U.S. is doing at the moment is degrading that capability of Iran and I think that’s very important,” he said. “This is important for European security, for the Middle East, it is vital for Israel itself.”

BRUSSELS — NATO chief Mark Rutte on Wednesday declined to address Donald Trump’s latest warning he could reconsider the U.S. role in the alliance after berating allies for not backing his war in Iran. The U.S. president on Tuesday branded NATO countries “very foolish” for snubbing his demands for military support in securing the critical Strait of Hormuz trade artery. As a result, rethinking the U.S. role in the alliance it founded was “certainly something we should think about,” he said. But asked about the latest broadside, Rutte demurred. “When it comes to the Strait of Hormuz, I have been in contact with many allies. We all agree, of course, the strait has to open up again,” he said. “What I know is that allies are working together discussing how to do that,” he told reporters during a visit to a NATO military exercise in Norway. “What is the best way to do it? They are working on that collectively to find a way forward.” The remarks underscore the high-wire act facing Rutte as the U.S.-Israeli war with Iran drags into its third week. The secretary-general wants to placate Trump — a longtime NATO skeptic — while avoiding a full embrace of a war which is out-of-area for NATO and has been widely criticized by other allies. Yet the latest comments also mark a change in tack from Rutte, after countries like Spain hit out at the alliance boss for his claim earlier this month that the war enjoyed “widespread support” from NATO allies. The former Dutch prime minister on Wednesday avoided praising the war effort, and did not allude to European support for the conflict. The U.S. has so far not issued specific requests for help from NATO, but individual allies like Estonia have offered to send equipment and vessels to help keep the Strait of Hormuz open after Iran effectively shut off shipping in the chokepoint through which around a fifth of the world’s oil passes.

BRUSSELS — The EU’s 27 member countries are set to back a push to send more naval ships to the Middle East as conflict paralyzes shipping routes, but will insist on them operating strictly within the parameters of missions that predate the war in Iran. Presidents and prime ministers from across the bloc will meet in Brussels Thursday to discuss their response to the Iran crisis. In a draft statement being negotiated by ambassadors in advance of the talks — seen by POLITICO — the leaders show support for an increased naval presence in the region. “The European Council highlights the role of the EU maritime defensive operations EUNAVFOR ASPIDES and EUNAVFOR ATALANTA, and calls for their reinforcement with more assets,” reads the latest version of the text, dated March 17. However, the text introduces new language demanding that the vessels take part in the missions only “in line with their respective mandates.” The EU-led Aspides is confined to the Red Sea and the Gulf of Aden, and was launched in 2024 in response to Houthi militant attacks on naval traffic travelling to and from Europe via the Suez Canal. Atalanta, meanwhile, patrols the east coast of Africa and the Indian Ocean to combat piracy. The Trump administration has urged European allies to send frigates to escort naval traffic through the Strait of Hormuz. Energy prices have skyrocketed as a result of tankers being unable to cross the narrow waterway, which links oil- and gas-rich exporters like Saudi Arabia and Qatar to the global market. “I wonder what would happen if we ‘finished off’ what’s left of the Iranian Terror State, and let the Countries that use it, we don’t, be responsible for the so called ‘Strait?’ That would get some of our non-responsive ‘Allies’ in gear, and fast!!!,” U.S. President Donald Trump wrote on Truth Social on Wednesday. Ahead of the EU summit, a group of countries — Italy, Spain, Greece, Malta and Cyprus — have written to the bloc’s leadership warning of another potential maritime crisis caused by the Russian liquefied natural gas carrier Arctic Metagaz, which has been adrift in the Mediterranean since March 3. “The precarious condition of the vessel, combined with the nature of its specialised cargo, gives rise to an imminent and serious risk of a major ecological disaster in the heart of the Union’s maritime space,” the leaders of the coastal nations warned. “In this context, we look to the European Commission to facilitate the mobilisation and coordination of Member States and existing EU-level mechanisms, with the goal of ensuring their more efficient, better coordinated and faster response.”

President Donald Trump is demanding that the Federal Reserve immediately lower borrowing costs. But the war in the Middle East has now made any interest rate cuts much less likely in 2026 — not just in the U.S. but around the world. With oil prices surging past $100 a barrel and Gulf shipping routes disrupted by Iran, governments and investors are bracing for a repeat of the 2022 energy shock from Russia’s invasion of Ukraine. And from Washington to Frankfurt, and London to Tokyo, the world’s central banks are likely to strike a more wary tone on inflation while assessing the fallout during a flurry of policy meetings taking place this week. The effective closure of the Strait of Hormuz, a channel through which roughly a fifth of global oil passes, is pushing up costs not only for energy and transportation, but also for other key goods that are shipped through the waterway. The result could be a toxic mix for central banks: higher prices and lower employment, two problems they’re not equipped to address simultaneously. “My best guess, but spoken with no conviction at all, is that this gets sorted out somehow in the next few weeks, and by the middle of the year, oil prices have come back down a fair amount,” said William English, a former top staffer at the Fed who is now a professor at Yale University. “But there’s a real risk, of course, that things go on for longer and are more damaging. And in that case, all bets are off.” The specter of a prolonged global energy crunch could dash the hopes of consumers, businesses and investors worldwide for rate cuts this year — and in some cases, throw those plans in reverse. No immediate moves are likely except in Australia, which raised its target rate by a quarter-point on Tuesday. But markets have already repriced their bets on what comes next from monetary policymakers. Indeed, if the Fed does cut rates later this year, it might be one of the few major central banks that does so, given that other economies like Europe are more exposed to higher energy costs than the U.S. Before the war, investors saw a chance of cuts from the Fed, the European Central Bank and the Bank of England. Now they’re pricing in an altogether tighter policy stance: at least one ECB rate hike this year, a 60 percent chance of a BoE increase, fewer and later cuts from the Fed and more urgency in raising rates from the Bank of Japan. Central bankers will prefer to wait until they get a better gauge of the economic repercussions from the conflict because “the shock could turn out to be negligible or very large,” said EFG chief economist Stefan Gerlach. But few doubt the need for strong messaging as central banks are wary of repeating 2022, when energy price shocks combined with the after-effects from Covid and fiscal stimulus to morph into the worst inflation spike in half a century. “There will be a significant contingent worrying about upside inflation risks in light of the 2022 experience,” J.P. Morgan economist Greg Fuzesi said ahead of the ECB’s policy-making council’s meeting on Thursday. The Iran conflict is further complicating efforts by Trump to demonstrate to voters that the GOP is addressing cost-of-living concerns before this year’s midterm elections. Already, the war has caused a surge in politically salient gas prices and erased some of the progress toward more affordable mortgage rates. And it’s further muddied the picture for a central bank that the president has been pressing hard to take decisive action toward rate cuts. Now, when Chair Jerome Powell and other Fed officials meet on Wednesday, they’re expected to be more open to the idea of rate increases later this year, though that’s still not the likeliest outcome. As Yale’s English pointed out, higher costs might ultimately increase the case for rate cuts if they slow the economy significantly. “With the higher oil prices and the shock to the global economy, the likelihood of overheating seems reduced now, so that’s one of the reasons you might be comfortable waiting through some period of higher inflation,” rather than hiking rates in response, English said. “This might be enough to push the economy into real weakness, and in that case, they might well have to cut.” But if households and businesses start to worry about a new acceleration in inflation and start expecting higher prices, that dynamic can be self-fulfilling and might call for rate hikes. Hawkish policymakers are already signaling the ECB won’t hesitate this time. “A reaction by the ECB is potentially closer than many people think,” Peter Kažimír, Slovakia’s central bank governor, told Bloomberg last week. “We will be ready to act if needed.” President Christine Lagarde pledged to ensure that consumers “don’t suffer the same inflation increases like those we saw in 2022 and 2023.” Back then, the ECB was slow to react, helping inflation surge past 10 percent. Economists say today’s backdrop looks very different: In 2022, rates were near or below zero, balance sheets were bloated and fiscal policy was highly expansionary. “When inflation rose, it did so in an environment of strong demand supported by both fiscal and monetary stimulus,” said Gerlach. Now, tighter monetary and fiscal policy should limit the risk of energy shocks spilling through the economy into second-round effects. Still, Barclays analyst Silvia Ardagna says that if medium-term inflation expectations “deteriorate significantly,” she expects “the ECB to act more swiftly than in 2022, but to tighten policy gradually.” Nick Kounis, of Dutch bank ABN AMRO, also sees a more hawkish tone. “Uncertainty on the conflict is high, but if the current situation persists through to the April meeting, a hike becomes a distinct possibility,” he said. Many analysts say the first obvious central bank casualty of the war is likely to be the Bank of England, which was widely expected to cut this week but is now seen firmly on hold. That’s because the U.K. still hasn’t quite gotten on top of the inflation that was unleashed four years ago. Andrew Benito, an economist with hedge fund Point72 in London, reckons that the inevitable increase in fuel prices and household energy bills alone will add a full percentage point to headline inflation by summer, with “second-round” impacts on other prices pushing it even further away from the BoE’s target. That, says Deutsche Bank’s Sanjay Raja, will force the bank into some “uncomfortable trade-offs”: The U.K. economy has already slowed over the last year due to global trade uncertainty and various government tax hikes to close the budget deficit. Hiking rates when the economy is already struggling could risk needlessly making things worse. But any sign of complacency could be disproportionately punished by the markets, given that the BoE performed worse than any other major central bank during the last inflation shock (the headline rate peaked at over 11 percent). Raja expects BoE Governor Andrew Bailey to highlight the differences with 2022 — when inflation was accelerating rather than slowing — as one reason not to overreact to today’s price spike. However, he expects that Bailey, like the ECB and others, will talk tough about not letting business and households develop an inflationary mindset again. More important will be the Bank of Japan’s decisions and press conference on Thursday, due to the outsized influence of Japanese interest rates on global financial markets. For decades, Japan kept interest rates low and printed money furiously to escape deflation. As long as it did so, Japanese and foreign investors borrowed yen cheaply to throw at higher-yielding markets such as the U.S. Now, however, the BoJ’s concerns have finally switched from deflation to inflation, and BoJ Governor Kazuo Ueda is now in a hurry to “normalize” policy. Its key interest rate, at 0.75 percent, is the lowest in the developed world outside Switzerland. But Japan, too, faces a big headwind from higher energy prices because of its dependence on imports, and Gregor Hirt, chief investment officer for Multi Asset at Allianz Global Investors, argues that the BoJ will hesitate before raising rates again. The trouble with waiting and seeing is that the yen has already lurched lower, prompting alarm in Washington and sparking rumors of possible intervention to support it. “In order to stop further weakness, the BoJ may have to move up a rate hike to stabilize the currency,” Hirt said. Meanwhile, the war has presented the Swiss National Bank, which has kept interest rates at zero since June 2025, with a different kind of conundrum. One risk is that a global “flight to safety” drives the Swiss franc to even greater heights against the euro and others. That could make so many imports cheaper that the overall inflation rate could turn negative. Alternatively, the boost in energy prices could have the same malign impact on inflation as it will elsewhere. “The SNB will probably prefer to wait and see which of the two effects will have the greater impact on inflation prospects before acting in one direction or the other,” said ING economist Charlotte de Montpellier, who expects the Swiss central bank to stay on hold. That response, shot through with varying degrees of nervousness, looks likely to be the dominant one this week. But things will look very different if the war situation hasn’t improved by the next round of meetings.