G7 Warns Iran War Is a “Catastrophe” for Global Economy Amid Limited Diplomatic Leverage

The escalating war involving United States, Israel and Iran is rapidly emerging as a major economic shock, with G7 leaders warning that its consequences are being felt far beyond the Middle East. Ahead of a key summit in France, European officials described the situation as a “catastrophe” for global markets, underscoring the scale of disruption now unfolding.

At the center of the concern is the severe impact on global energy supply. The near closure of the Strait of Hormuz — a critical route for roughly one-fifth of the world’s oil and gas — has sharply constrained energy flows. Combined with damage to refining and production infrastructure across the Gulf, the disruptions have sent energy prices soaring and intensified fears of prolonged supply shortages.

European leaders say the situation has reached a critical point, with large portions of regional refining capacity either damaged or offline. The ripple effects are already being felt globally, particularly in energy-importing regions that are highly sensitive to supply shocks and price volatility.

Despite the urgency, G7 members appear to have limited ability to shape the trajectory of the conflict. European officials have openly expressed frustration at being sidelined from key decisions, emphasizing that they were neither consulted nor involved in the initial military actions. This has left them largely in a reactive position, focusing on mitigating economic fallout rather than influencing strategic outcomes.

The geopolitical divide is further complicated by differing priorities within the alliance. While European nations are pushing for de-escalation and a diplomatic off-ramp, Washington’s position remains fluid, balancing between ongoing military operations and tentative efforts to explore a ceasefire through indirect negotiations.

Signals from both sides remain mixed. While the U.S. has indicated it is exploring potential peace proposals, Iran has shown little willingness to engage in direct talks, instead maintaining a hardline stance and outlining its own conditions — including control over key shipping routes.

At the same time, the risk of further escalation remains high. Additional troop deployments and discussions around securing or reopening critical energy infrastructure suggest that military options are still firmly on the table. This uncertainty is compounding volatility across global markets and raising concerns about longer-term economic consequences.

For Europe and other G7 members, the conflict presents a difficult balancing act. While they are keen to avoid deeper involvement in what many view as a war of choice, the economic and geopolitical repercussions are increasingly unavoidable — particularly for vulnerable regions that are heavily dependent on stable energy supplies.

As the summit unfolds, the focus is likely to remain on managing the fallout rather than resolving the crisis itself. With limited leverage over key actors and a rapidly evolving situation on the ground, the G7 faces a stark reality: the war’s global impact is undeniable, but its ability to stop it remains uncertain.