LONDON — Emergency support to help Brits grappling with rising bills should go to “those who need it most,” Chancellor Rachel Reeves said Tuesday — all-but ruling out a Liz Truss-style universal bailout in response to the Iran war. Pledging to “learn the mistakes of the past,” Reeves told MPs Tuesday that, while “contingency planning” is underway for “every eventuality,” the government will be “responsible” with public finances in any new state intervention. Oil and gas prices have soared since the conflict began, leading to higher fuel prices in the U.K. and sparking fears of a sharp increase in family and business energy bills when a regulated price cap period ends in July. Reeves said that, while the full impact of the crisis is not yet known, “the challenges may be significant.” In response to the 2022 energy crisis sparked by Russia’s invasion of Ukraine, the government of then-Prime Minister Liz Truss subsidized the bill of every household in the country — a policy backed by the Labour Party at the time. But Reeves today criticized the “unfunded, untargeted” 2022 package, saying it had pushed up borrowing, interest rates and inflation. Between 2022 and 2024, households in the top income decile received an average £1,350 of direct energy bill support, Reeves said, contributing to national debt “still being paid today.” However, the chancellor stopped short of explicitly ruling out a similar approach. She said: “Contingency planning is taking place for every eventuality so that we can keep costs down for everyone and provide support for those who need it most, acting within our ironclad fiscal rules to keep inflation and interest rates as low as possible.” The government has already announced a £53 million package of support for households that use heating oil, which are not protected by the energy price cap. The majority of households that use gas and electricity will not see prices rise until July, when the next price cap period ends. The latest expert projections suggest the average annual bill could rise by more than £200 from current levels. On fuel pricing, Reeves said the government would give an update “within the next month,” amid pressure from opposition parties to extend a longstanding five pence tax relief on gasoline and diesel — the fuel duty cut — beyond its expiry date in September. U.K. gasoline prices have have risen by nearly 16 pence per liter since the war began, while diesel has risen by more than 31 pence.

LONDON — Keir Starmer’s keeping Britain out of the war in Iran — but he can’t duck the conflict’s grave economic consequences. In a sign of growing fears about the impact of the war on Britain, the prime minister chaired a rare meeting of the government’s emergency COBRA committee Monday night, joined by senior ministers and Governor of the Bank of England Andrew Bailey. Starmer’s top finance minister, Rachel Reeves, will update the House of Commons on the economic picture Tuesday, as an already-unpopular administration worries that chaos in the Middle East is shredding plans to lower the cost of living and get the British economy growing. For Starmer’s government — headed for potentially brutal local elections in May — the crisis in the Gulf risks a nightmare combination of a rise in energy prices, interest rates, inflation and the cost of government borrowing that threatens to undermine everything he’s done since winning office. Economists are now warning that even if Donald Trump’s promise of a “complete and total resolution of hostilities” with Iran were to bear fruit, the effects on the British economy could still last for months. Already there are signs of a split within Starmer’s party over how to respond. Labour MPs want the government to think seriously about action to protect households — but Starmer and Reeves have long talked up the need for fiscal responsibility, and economics are warning that there’s little room for maneuver. Fuel prices displayed at a Shell garage in Southam, Warwickshire on March 23, 2026. | Jacob King/PA Images via Getty Images Jim O’Neill, a former Treasury minister who served as an adviser to Reeves, told POLITICO the government should “not get sucked into reacting to every external shock” and “concentrate on boosting our underlying growth trend.” WHY THE UK IS SO HARD HIT Just before the outbreak of war, there was reason for Starmer and Reeves to feel quietly optimistic about the long-stagnant British economy. The Bank of England had expected inflation to fall back sustainably toward its two percent target for the first time in five years, giving the central bank the space to carry on cutting interest rates.  With the Iran war in full flow, it was forced to rewrite those forecasts at the Monetary Policy Committee’s meeting last week — and now sees inflation at around 3.5 percent by the summer. The U.K. is a big net importer of energy and also needs constant imports of foreign capital to fund its budget and current account deficits. That’s made it one of first targets in the financial markets’ crosshairs. The government’s cost of borrowing has risen by more than half a percentage point over the last month. That threatens both the real economy and Reeves’ painstakingly-negotiated budget arithmetic. Higher inflation means higher interest rates and a higher bill for servicing the government’s debt: fiscal watchdog the Office for Budget Responsibility estimates a one-point increase in inflation would add £7.3 billion to debt servicing costs in 2026-2027 alone. The effect on businesses and home owners is also likely to be chilling. Britain’s banks are already repricing their most popular mortgages, which are tied to the two-year gilt rate. Hundreds of mortgage products were pulled in a hurry after the MPC meeting last week, something that will hit the housing market and depress Reeves’ intake from both stamp duty and capital gains. Duncan Weldon, an economist and author, said: “Even if this were to stop tomorrow, the inflation numbers and growth numbers are going to look materially worse throughout 2026. “If this continues for longer… it’s an awful lot more challenging and you end up with a much tougher budget this autumn than the government would have been hoping to unveil.” DECISION TIME The U.K.’s economic plight presents an acute political headache for Starmer, as he faces a mismatch between his own party’s expectations about the government’s ability to help people and his own scarce resources. Energy Secretary Ed Miliband has promised to keep looking at different options for some form of assistance to bill-payers hit by an energy price shock. A pain point is looming in July, when a regulated cap on energy costs is due to expire and bills could jump significantly. One left-leaning Labour MP, granted anonymity to speak frankly, said: “They [ministers] need to be treating this like a financial crisis. They need plans for multiple scenarios with clear triggers for government support.” A second MP from the 2024 intake said “it’s right that a Labour government steps in, particularly to help the most vulnerable.” Foreign Secretary Yvette Cooper and Chancellor of the Exchequer Rachel Reeves at the first cabinet meeting of the new year at No. 10 Downing St. on Jan. 6, 2026 in London, England. | Pool photo by Richard Pohle via Getty Images This demand for action is being felt in the upper echelons of the party too, as Culture Secretary Lisa Nandy recently argued Reeves’ fiscal rules — seen as crucial in the Treasury to reassure the markets — may need to be reconsidered if prices continue to rise and a major support package is needed.  One Labour official said there are clear disagreements with Labour over how to go about drawing up help and warned “the fiscal approach is going to be a massive dividing line at any leadership election.” The same official pointed to recent comments by former Starmer deputy — and likely leadership contender — Angela Rayner about the OBR, with Rayner accusing the watchdog of ignoring the “social benefit” of government spending. Despite the pressure, ministers have so far restricted themselves to criticizing petrol retailers for alleged profiteering, and have been flirting with new powers for markets watchdog the Competition and Markets Authority. The government said Reeves would on Tuesday set out steps to “help protect working people from unfair price rises,” including a new “anti-profiteering framework” to “root out price gouging.” But Starmer signaled strongly in an appearance before a Commons committee Monday evening that he was not about to unveil any wide-ranging bailout package, telling MPs he was “acutely aware” of what it had cost when then-Prime Minister Liz Truss launched her own universal energy price guarantee in 2022.  O’Neill backed this approach, saying: “I don’t think they should do much… They can’t afford it anyhow. The nation can’t keep shielding people from external shocks.” Weldon predicted, however, that as the May elections approach and the energy cap deadline draws nearer, the pressure will prove too much and ministers could be forced to step in. The furlough scheme rolled out during the pandemic to project jobs and Truss’s 2022 intervention helped create “the expectation that the government should be helping households,” he said. “But it’s incredibly difficult. Britain’s growth has been blown off-course an awful lot in the last 15 years by these sorts of shocks.” Geoffrey Smith, Dan Bloom, Andrew McDonald and Sam Francis contributed to this report.

FRANKFURT — Europeans will feel the pain of the war on Iran in their wallets this year, even if things don’t get any worse from here on, the European Central Bank warned on Thursday. The ECB’s new forecasts show that inflation is set to rise to 2.6 percent this year—well above the 1.9 percent forecast as recently as December, while growth will slow as businesses and households have to divert more of their spending power to essentials such as energy. “The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth,” the ECB said, drawing on new quarterly forecasts for the eurozone outlook. The forecasts were published after its policy-making Governing Council left the Bank’s official interest rates unchanged, as expected. The renewed hit comes just as purchasing power was starting to recover from the last surge in prices caused by Russia’s invasion of Ukraine in 2022. That pushed headline inflation up to 10 percent within a year. On the upside, this forecast suggests that the ECB expects the problem to correct itself without it needing to raise interest rates aggressively. It sees inflation easing back towards the ECB’s 2 percent target within a couple of years, the time horizon that the ECB uses to guide its policy decisions. The economy is forecast to grow, albeit slightly less than previously expected: the Bank trimmed its forecast to 0.9 percent from 1.2 percent for this year, and to 1.3 percent from 1.4 percent for next year. Central banks are generally reluctant to respond to so-called supply shocks because their main policy tool — control over interest rates — only works with long and often uncertain time lags, while the geopolitical situation behind the supply shock can change at very short notice. However, they have to balance that against the risk of appearing complacent and letting expectations of high inflation become self-fulfilling, as constant price increases by retailers lead to more aggressive pay demands from workers. In its regular policy statement, the ECB stressed that it is “closely monitoring the situation” and will set monetary policy as appropriately. Investors have bet that this means raising the key deposit rate twice this year, to 2.5 percent. But policymakers around the globe have cautioned against rushing to such conclusions. “The thing I really want to emphasize is that nobody knows,” Federal Reserve Chair Jerome Powell told reporters following the Fed’s decision to leave rates unchanged on Wednesday. “It is too soon to know the scope and duration of the potential effects on the economy.”  ECB President Christine Lagarde is expected to echo that message at her press conference later on Thursday. However, the Bank did say that it had looked at the possible consequences of an extended disruption of global oil and gas supplies, and warned that this “would in the supply of oil and gas “would result in inflation being above, and growth being below, the baseline projections.” There is broad consensus among central bankers and private-sector economists that the longer the conflict lasts, the more likely it is to create so-called “stagflation” — a combination of economic stagnation and inflation. While the ECB, like other central banks around the world, was content to adopt a “wait-and-see” policy on Thursday, analysts don’t expect its patience to last very long. A clearer picture is expected to emerge as soon as next month. “If the current situation persists through to the April meeting, a hike becomes a distinct possibility,” according to ABN AMRO’s chief economist Nick Kounis.

The Bank of England warned it may have to take a tougher line on interest rates as the spike in energy prices caused by the U.S.-Israeli war on Iran pushes inflation higher. “Monetary policy cannot reverse this shock” to world energy supply, Governor Andrew Bailey said in a statement on Thursday, after the Monetary Policy Committee voted unanimously to leave the Bank rate unchanged at 3.75 percent. “Monetary policy must, however, respond to the risk of a more persistent effect on U.K. consumer price inflation,” Bailey added. The Bank had only last month declared victory over inflation, which has been above its 2 percent target for over four years. However, its latest analysis suggests headline inflation will rebound back above 3 percent in the next three months and could add as much as 0.75 percentage points to the consumer price index over the summer, as higher fuel bills percolate through the economy. “The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist,” the Bank stressed. However, it also acknowledged that the energy price spike is likely to hurt economic growth, and that it is “assessing the implications for inflation of the weakening in economic activity that is likely to result from higher energy costs.” Until the U.S. and Israel attacked Iran, most analysts had predicted that a slowing economy and growing prospects of easing inflation would allow the MPC to cut rates at Thursday’s meeting. However, the invasion and the ensuing turmoil in world commodity markets have turned the situation on its head, by closing a vital chokepoint at the mouth of the Persian Gulf, through which irreplaceable volumes of oil, gas and fertilizer pass every day. As a result, the Bank warned that there is now a real threat of higher energy prices causing a broader rise in prices across the economy. Food prices face a similar risk. ALREADY OUT OF DATE? The situation is changing so fast that the Bank’s latest forecasts could already be out of date. The Bank said they were based on the situation as of March 16, when Brent oil futures were only at $100 a barrel. But a succession of strikes on key energy installations around the Persian Gulf since then has already pushed prices up by another 12 percent. “The news flow around the war in Iran looks more worrying for global markets with each passing day,” Deutsche Bank strategist Jim Reid said in a note on Thursday. Analysts argued ahead of the meeting that the Bank would prefer to err on the side of keeping policy tight in the face of the new risks, given lingering concerns about its credibility due to its slow response to the inflation shock in 2022. Inflation peaked at 11.1 percent back then, the highest rate posted by any major economy. The Bank’s change in outlook will make life doubly uncomfortable for the Labour government, which had hoped that its efforts to close the U.K. budget deficit would be rewarded with lower inflation and lower interest rates. Instead, the government’s key 10-year borrowing costs have risen by nearly half a percentage point since the war started, and they leaped again on Thursday, first in response to Iranian attacks on a Qatari gas field, then to the BoE’s statement. At 4.89 percent, the 10-year gilt yield is now at its highest in 15 months. The pound, by contrast, was steady against the dollar and euro after the decision. The Office for Budget Responsibility earlier this month already cut its forecasts for U.K. growth this year. That implies lower tax receipts which, combined with higher borrowing costs, threaten a new two-way squeeze on Chancellor Rachel Reeves’ fiscal arithmetic, less than six months after she had to raise taxes sharply at her latest budget.

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.

EU leaders were all set to finally hammer out how they will revive the bloc’s ailing economy and chart a path to independence from powers like China and the United States. But Donald Trump had other plans. Just as the U.S. president’s threats to seize Greenland had dominated a previous gathering of leaders in January (and his tariffs had overshadowed a meeting before that), the U.S.-Israeli war on Iran has hijacked the agenda of Thursday’s European Council, forcing leaders to focus on a short-term energy crisis — while sapping attention from the original aim of talking about long-term competitiveness. “It is crucial that we reduce the price impact” from the war, European Commission President Ursula von der Leyen said in the run-up to the summit. “We must deliver relief now … [We need] a comprehensive look at how to reduce people’s energy bills.” With oil prices hovering around $100 per barrel, EU leaders will spend much of their time at Thursday’s meeting weighing how to offset the impact of surging energy prices on European households and businesses, according to several diplomats ahead of the gathering, who were granted anonymity to discuss private summit preparations like others in this article. While high energy prices have been a consistent theme in discussions among leaders for months, including at their gathering at Alden Biesen castle in Belgium last month, the volatility fueled by Iranian drone and missile attacks across the Middle East has turned an irritant into an emergency for leaders, who fear that surging inflation could fuel an upsurge in support for populist, anti-EU politicians. “The focus will be very strongly on energy prices — we are expecting proposals from the European Commission,” said a senior EU diplomat. “The situation with energy prices was there before at Alden Biesen but now it is indeed acute.” Then there’s the war itself, where Europe remains divided on how to respond to Trump. One camp led by Spanish Prime Minister Pedro Sánchez is pushing for the bloc to use Council conclusions (the often dry-seeming language agreed by all 27 leaders at the end of the summit) to call for international law to be upheld, in what would amount to an indirect rebuke to Trump and Israeli Prime Minister Benjamin Netanyahu. But another group of nations, including heavyweight Germany, is wary of taking any steps that could irritate the U.S. president and imperil an EU-U.S. trade deal currently being examined by European lawmakers. The risks of irking Trump are simply too great, said a second EU diplomat from a large country. “We don’t want trade escalation. We want the U.S. involved in Ukraine. We want them involved in NATO. Is it worth risking these objectives in order to be vocal about Iran? So far, not really.” “Is it worth saying: you stupid fuckers, why did you do it? No, because we will pay a higher price for that,” added the diplomat. The result is unlikely be a total missed opportunity. Leaders are still set to agree on ambitious deadlines for slashing EU red tape, as well as laying the groundwork for a more integrated European financial market. But their agenda is — once again — being dictated primarily by a leader who resides in Washington, not Europe. ORBÁN, AGAIN Oil prices surging past $100 per barrel last week have thrust Europe back into the dark days of 2022 when Russia’s full-scale invasion of Ukraine caused a massive spike in energy prices across the bloc. Those price spikes, though offset thanks to a huge injection of EU cash, nonetheless helped far-right and far-left political movements, with Hungarian Prime Minister Viktor Orbán basing his current reelection campaign on the idea that the Ukraine war has been too costly. Now Orbán is set to seek center stage again: His threat to veto a planned €90 billion EU loan for Ukraine looms as the major unsolved question of the summit, infuriating leaders. Frustration at Budapest is at a fever pitch, according to the senior diplomat, with governments taking on a “much more direct, even confrontational” tone with Budapest behind closed doors, the person said. Orbán’s violating his promise to back the loan had made it possible for other countries to drag him before the European Court of Justice for violating the EU principle of “sincere cooperation,” the two diplomats said. However, they acknowledged that any legal proceedings would take months or years to conclude — far too long for Ukraine, which needs the EU loan within months. The alternative is to reach a deal on Thursday. The same two diplomats voiced optimism it could be done and said Orbán himself had shown openness to a deal, which could also include unblocking a 20th package of sanctions against Russia that is currently being held up by Budapest and Bratislava. Leaders are also due to lock horns over the longer-term direction of Europe’s energy policies. A group of Nordic countries, plus Spain, wrote to the Commission before the summit to defend the bloc’s Emissions Trading System (ETS), arguing that greater use of renewable energy will make the EU more autonomous. But they’re up against Italy’s Giorgia Meloni and Poland’s Donald Tusk, who are pushing for tweaks to the ETS to offset potential price spikes linked to the fact that Poland and Italy remain big consumers of fossil fuel. “I don’t know if we go as far as removing ETS completely,” said the second EU diplomat, when asked about their country’s demands for next week’s leaders’ summit.  But the diplomat added: “If you have a [price] spike caused by an external shock, there has to be a mechanism where ETS doesn’t add to this shock.” IRAN AND UKRAINE Another major concern is how the Iran war affects Ukraine, given that spiking oil prices have refilled Russian President Vladimir Putin’s coffers just as his army is losing control of the Dnipropetrovsk region in eastern Ukraine. Leaders are also concerned that demand for U.S. weapons for the Iran war will deprive Kyiv of much-needed arms, which in many cases are being purchased with EU money. Diplomats say this could be a chance for Europe’s defense industry to step in while providing Ukraine with much-needed revenues given its production capacity. Indeed, Ukraine has announced it is sending anti-drone operators and counter-drone technology to assist the Gulf states. The push to take advantage is reflected in a draft of the conclusions, dated March 9 and seen by POLITICO, where leaders call “for a step change” in strengthening the EU’s defense industry. A previous version did not include such strong wording. But it remains unclear whether Europe’s defense industry can keep up with demand.  After the war in Ukraine, this is a new challenge for the industry — military conflicts are proliferating so fast that the sector can’t keep up with production demand, said the CEO of Italian defense giant Leonardo, Roberto Cingolani. “There’s a big effort ongoing” to help countries in the Persian Gulf that are under attack from Iran, Cingolani told a company presentation in Rome last week.  But “to be honest,” he added, “the number of wars … is growing even faster than our Capacity Boost program,” he added, referring to a Leonardo initiative to increase production capacity in response to rising demand. Jacopo Barigazzi contributed reporting.

NYÍREGYHÁZA, Hungary — Hungarian Prime Viktor Orbán’s political dominance is in question for the first time in 16 years. And in his ruling party’s rural stronghold, younger voters are complaining their elderly relatives are still spellbound by him. Capitalizing on voter frustration over record inflation, economic malaise and endemic corruption, opposition figure Péter Magyar’s campaign has turned his once small center-right Tisza party into a strong anti-Orbán bloc that now holds a national lead in the polls. His promises of building a “modern, European Hungary” are resonating — particularly with the young. But not so much with the older generation who are more resistant to Magyar’s call for change. And that generational divide, younger voters worry, may be a decisive factor in what’s shaping up to be the country’s most consequential election since the end of Communism. The northeastern town of Nyíregyháza, where more than half the population is over 50 years old, is a prime example of this. Long a Fidesz fortress, town residents were hesitant to talk to media or share their last names for fear of online reprisal, particularly the older generation of ruling party supporters. However, some Tisza voters were willing to speak and lament their Orbán-supporting elders — like 27-year-old actor and former Fidesz voter Benji. Asking not to share his family name for fear of trolling on social media, “I’m rooting for Tisza, and I’m hoping there will be some change. The country is heading in the wrong direction, culturally and business-wise,” he told POLITICO. But, he added, in a conversation interrupting his short walk to the theater, “my mom is voting for Orbán because of the war. And her friends as well.” According to Benji, Orbán’s laser-like campaigning about the risks of being sucked into the war in neighboring Ukraine, and his relentless portrayal of Magyar as a Brussels stooge, is working like a spell on the elderly in Nyíregyháza, which is just 70 kilometers from the Ukrainian border. So, too, is his argument that the country needs political stability and that his is the safest pair of hands to navigate these highly dangerous times. Péter Magyar’s promises of building a “modern, European Hungary” are resonating — particularly with the young. | Ferenc Isza/AFP via Getty Images It’s not just in Nyíregyháza that the generational divide spells trouble for Magyar either. Tisza faces a similar problem in other eastern and southern towns, as Fidesz’s traditional heartland has seen a near-constant exodus of the young in search of jobs and opportunities in Budapest or overseas. This youthful flight has only buttressed Fidesz’s regional dominance over the years, and if Tisza is to oust the long-serving Hungarian leader, it will have to win at least some of these towns. And given Orbán’s incumbent advantages, dominance over government-owned airwaves and the largely obliging press controlled by his business allies, Tisza will only have a chance of unseating him if it can erode his party’s traditional vote. Nyíregyháza’s older population is particularly tight-lipped, but Katalin, a 70-year-old semi-retired credit advisor, was happy speak. Once a loyal Fidesz voter, she’s now doing her best to cajole her peers toward Tisza, though she admits whipping up support among her peers in her hometown has been tough, particularly because of the war. “I’m trying to convince everyone that I can to vote for the opposition. But, unfortunately, I have Fidesz voters in my circle. I can’t believe they’re not seeing what this filth is doing,” she said. Dotted around the town are Fidesz billboards depicting Magyar as Janus-like, with half his face transformed into the EU flag. Others group together portraits of Magyar, EU Commission President Ursula von der Leyen and Ukrainian President Volodymyr Zelenskyy, implying they’re all one and the same. “When I talk to my mom about politics, I feel like she’s brainwashed. I try to speak with her to raise her awareness and to encourage her to question things, so she could see behind what’s in the news. My mom is 64. But she and her friends are going to vote for Fidesz,” Benji similarly complained. Tisza will only have a chance of unseating Viktor Orbán if it can erode his party’s traditional vote. | Attila Kisbenedek/AFP via Getty Images Tibor, an IT worker, is encountering the same with his grandmother. “She’s a big fan of the ruling party. And one of my relatives is working for Fidesz, so they are, of course, voting for Orbán,” he explained. “I have no clue why anyone would vote for Fidesz. I feel like they’re just old and glued to watching the government TV channels. They have tunnel vision.” The last time Hungary held parliamentary elections in 2022, opposition hopes were similarly high, but that’s not how things turned out: Fidesz secured the highest vote share of any party in Hungary since the fall of Communism in 1989. “We won a victory so big that you can see it from the moon, and you can certainly see it from Brussels,” boasted an ebullient Orbán. And in the Szabolcs-Szatmár-Bereg region, where Nyíregyháza is the county capital, Fidesz crushed the opposition with a 61 percent vote share — 7 percent higher than the party’s national take. Yet, Tisza is sure this time will be different, partly because it’s fielding local star László Gajdos as its main candidate here. Hungarians cast two votes — one for the national party list and another for their preferred candidate in single-member district constituencies. Of the 199 seats in the National Assembly, 106 are filled by winners of the district races, while the remaining 93 seats are distributed among winners of the party lists. And Gajdos, a highly popular director of the Nyíregyháza Zoo, is running on both. Even pro-Fidesz observers like Mráz Ágoston Sámuel, director of the research consultancy Nézőpont Institute, expect Tisza to win more national list seats “because opposition voters are very much concentrated in the cities, especially in Budapest. From the party list, we estimate Fidesz will get about 40 seats,” he told POLITICO. But the real fight will be in the districts, and Fidesz will still win the majority there, he said. Tisza disagrees. Péter Lajos Szakács, one of the party’s candidates in Nyíregyháza, told POLITICO he’s confident the party will win. “In Nyíregyháza, we will win with a landslide. I’m in the second district and Gajdos is in the first. He’ll have a historic win. With me, what I can say is that right now, I’m in a tie with my opponent. But we’re working hard, so we can send him into retirement, and he can then spend time with his grandkids,” he said confidently. But local supporters POLITICO spoke to weren’t quite so convinced the electoral struggle in Nyíregyháza is over. “I wouldn’t dare make any predictions,” cautioned Benji. However, most of them did say they thought the election outcome would be close. And that in itself suggests Fidesz isn’t likely to scale the heights it did in 2022. Dotted around the town are Fidesz billboards depicting Magyar as Janus-like, with half his face transformed into the EU flag. | Artur Widak/NurPhoto via Getty Images Ultimately, in the districts outside Budapest, much will depend on whether Fidesz can once again mobilize its supporters and get out the vote. In the past, the party was highly efficient in doing so, but in a video of party workers gathered for “warrior training” in October, Orbán was seen fuming about the state of the party’s databases, complaining they were in bad shape. Even so, according to 76-year-old retail store owner Júlia, soothsaying might be a mistake. Unlike most of her contemporaries, Júlia thinks Hungary desperately needs change: “I don’t want to say who I’m voting for. My main criterion is that my kids and my grandkids get to stay here. And that they can make a living, and I don’t think that will happen unless things change. Life will then get easier here,” she mused. In the meantime, with political tensions running high, her business is being impacted. Gesturing to the empty street in downtown Nyíregyháza, she said: “Everything is so quiet. We can really feel it. People are saving up their money. They’re scared of what the future will bring.”

BRUSSELS — The European Commission is under pressure from a growing chorus of member countries to deploy emergency measures to tackle soaring energy costs triggered by the war in the Persian Gulf. Italy, Austria, Slovenia and Slovakia are among the nations openly pushing Brussels for a stronger answer to the crisis, with at least two other countries privately expressing frustration with the Commission’s slow response. Oil and gas prices have soared since the U.S.-Israeli war with Iran began 11 days ago, with oil passing $100 a barrel in the first week of the war before settling at $88 on Tuesday. But the Commission has refrained from formally deploying any EU-wide powers, and on Tuesday the bloc’s energy chief Dan Jørgensen said there was no immediate risk to supply. Instead, the Commission has highlighted existing long-term plans to diversify supply, reduce demand for fossil fuels and expand homegrown renewables. On Tuesday it also called on member countries to reduce energy bills by cutting domestic energy taxes. However, countries with fewer resources — and greater electoral pressures — are growing impatient and are seeking to push the Commission to invoke EU-wide emergency powers the bloc used after the energy crisis triggered by Russia’s invasion of Ukraine in 2022. Those powers include relaxing state aid rules to allow subsidies for struggling consumers and businesses, coordinating demand reduction, and imposing a price cap on gas.  There have also been numerous calls to suspend the Emissions Trading System, including from Italy — though the EU’s clean transition chief Teresa Ribera ruled that out on Tuesday. Italy’s finance minister, Giancarlo Giorgetti, was the first to challenge the Commission’s cautious stance, calling on Brussels to wield those post-Ukraine tools at a meeting of finance ministers on Monday. Italians face the fourth-highest energy costs in Europe, thanks to the country’s continued reliance on expensive imported gas. That dependence risks exacerbating any increase in electricity prices resulting from the ongoing conflict at a time when Prime Minister Giorgia Meloni is trying desperately to reduce household bills. “Italy is very worried about the impact on inflation because of the inefficient energy mix we have,” said one Italian official, who was granted anonymity to speak openly. For that reason, the official added, it’s “better to bring forward actions to avoid inflation … and you cannot spend money in a pre-electoral year.” Italy wants a “unified” response given its “strong industry,” said Raffaele Nevi, a senior lawmaker in Forza Italia, a center-right party in Meloni’s coalition that supports Rome’s stance.  Nevi sent POLITICO a statement in which he emphasized that measures should be coordinated across borders to avoid “imbalances” that would arise if EU countries with varying levels of financial firepower responded to the crisis individually.  Robert Fico called for “concrete proposals” in lieu of “general statements or phrases.” | Simona Granati/Corbis via Getty Images A number of other countries are also waiting on the Commission to unveil concrete proposals, either at a coming summit of energy ministers next Monday or at a summit of European leaders later this month, according to three EU diplomats and one senior ministerial official in Slovenia.  That puts the ball squarely in the Commission’s court — and represents a subtle dig at the wait-and-see approach the EU executive has emphasized thus far.  “It’s not 10-year plans that will work” but short-term measures, said the Slovenian official, while acknowledging that the EU’s slow decision-making process makes agreement on such measures “very difficult.”   Immediate measures Slovenia will ask for on Monday include taxing windfall profits made by energy companies — first proposed in 2022 —  and coordinating to refill Europe’s dangerously low gas reserves, according to the official. Slovakia’s prime minister, Robert Fico, similarly called for “concrete proposals” in lieu of “general statements or phrases” following a meeting with Commission President Ursula von der Leyen on Tuesday. He said he hoped for tangible policies at the summit of the European Council later this month.  Austria also wants more concrete measures, a government spokesperson confirmed. Such measures may nevertheless set up a clash with other member states that prefer a market-driven approach. Countries with more fiscal firepower and more renewables are less likely to agree to emergency measures that could distort fine-tuned local market incentives, or redistribute resources to other countries.  These countries would prefer to use domestic legislation to address any serious increase in energy costs, according to multiple diplomats familiar with continental politics.  “We don’t want too much commitment here  — we’re not fans on emergency regulations, we’re fans of market solutions,” said one diplomat from a Northern European country. If the energy situation really deteriorated, the country might support EU-wide measures, the person added. “But we don’t like it.” Another diplomat, who broadly supports concrete measures, cautioned that measures should be both short- and long-term, given that Europe faced some of the world’s steepest energy costs even before the war in Iran. “There’s some worry that if things were to settle down somehow, that this attention for energy prices is lost — momentum needs to be kept,” the person said. A Commission spokesperson said “important discussions are ongoing,” adding that the Commission president would “present our assessment and options” at next week’s meeting of EU leaders.

BRUSSELS — The head of the International Energy Agency on Tuesday summoned an extraordinary meeting to decide whether to tap millions of barrels of emergency oil supplies amid soaring energy costs. The meeting, to be held at an undisclosed time on Tuesday, will “assess the current security of supply and market conditions to inform a subsequent decision on whether to make emergency stocks of IEA countries available to the market,” the agency’s chief, Fatih Birol, said in an emailed statement. The IEA’s 31 members — mostly advanced Western economies — have grown increasingly panicked as Iran and a U.S.-Israeli coalition trade airstrikes, imperilling critical supply chains and energy infrastructure across the Gulf. Merchant shipping has also abandoned the Strait of Hormuz, a chokepoint for 20 percent of the world’s energy trade, prompting fears of price spikes. The IEA’s members have yet to coordinate on measures to address the crisis, citing uncertainty over how long the war will last. Benchmark oil prices skyrocketed to over $100 a barrel in the first week of the war, before settling at $88 on Tuesday after U.S. President Donald Trump implied that the conflict was nearing a conclusion. Member countries currently hold over 1.2 billion barrels of emergency oil supplies as well as a further 600 million held under government obligation, Birol said.

LONDON — Britain must “back the Americans in this vital fight against Iran!” said Reform UK Leader Nigel Farage the day the war began. Less than two weeks on and he’s changed his tune. We “don’t have a Navy” and “cannot get involved directly in another foreign war,” Farage told a press conference on Tuesday. What’s changed? An energy shock. When the conflict had just started, and before it — predictably — sent oil and gas prices soaring and became a cost-of-living issue, he was all for it. But as soon as it threatened to hit British voters in their pockets, and proved deeply unpopular in polls of normal Brits, he went all wobbly. Some of Farage’s political opponents are determined not to let the populist leader distance himself from his original enthusiasm. “Trying to pull the wool over our eyes,” said Green Party Leader Zack Polanski on Tuesday, responding to an X post in which Farage’s Treasury spokesperson, Robert Jenrick, said the “war needs to come to an end as soon as possible, because it is making Britain poorer.” Having initially backed the conflict, Reform, said Polanski, is now “the party of foreign wars and higher bills.” Liberal Democrat Leader Ed Davey has taken a similar tack, telling the BBC on Monday that voters worried about the war’s effect on the cost of living should remember that Farage’s Reform, like the Conservative’s Kemi Badenoch, “cheered on Donald Trump.” Farage insisted Tuesday there’s no inconsistency, and that his original position had merely been that Prime Minister Keir Starmer should have allowed U.S. forces to launch attacks on Iran from U.K. bases from the outset of the conflict, not necessarily that the U.K. should join attacks on Iran. But the shift in tone reveals something fundamental about British politics in 2026: The cost of living is everything. A war that threatens to send it even higher always had the potential to prove unpopular. “The public are deeply uneasy about what they think could be unnecessary and costly involvement in foreign wars, [and have] significant hesitations about too close an alignment with President Trump,” said pollster Scarlett Maguire, director of Merlin Strategy. Ed Miliband posted a video seeking to “reassure” voters that the “cost of living crisis remains our number one priority — because its yours.” | Sean Gallup/Getty Images “The cost of living crisis in this country only exacerbates this, with voters already feeling that the government are not doing enough to bring down energy prices and inflation,” she added. On Tuesday, Farage and Jenrick attempted to flip the narrative by blaming “a ruinous climate agenda” for high energy costs in the U.K. The two unveiled a pledge not to increase taxes on gasoline, a promise they would pay for by scrapping green spending on heat pumps and carbon capture technology. And the Reform UK leader downplayed the impact of the war on oil and gas prices. “If the Straits of Hormuz are cleared — I accept that’s an ‘if’ — oil will be back into the low 80s [dollars per barrel],” predicted Farage at the event at service station Derbyshire. But he was challenged by a local news reporter, who noted that a third of people in the local area use heating oil to warm their homes — and are already seeing prices rise. The Labour government has, so far, been cautious not to attack Reform or the Conservatives too fiercely for their initial stance on the war, wary of driving a further wedge between Downing Street and the White House. But they are seeking to portray themselves as the grown-ups in the room, laser-focused on the cost of living. Energy Secretary Ed Miliband posted an uncharacteristically sober video message to social media on Tuesday, seeking to “reassure” voters that the “cost of living crisis remains our number one priority — because its yours.” Despite its own missteps over the Iran war, that’s a message Starmer’s government will be desperate to land, as the conflict’s shockwaves continue to hit Britain’s shores. Noah Keate contributed to this report.