Europe is again on the front line of the latest geopolitical tensions, a development that threatens to widen the economic gap between it and the U.S.
For the second time in three years, a conflict in Europe’s unruly neighborhood is threatening to weaken an already struggling economy while a more robust U.S. is watching from a safer distance.
This time, attacks by Houthi rebels in Yemen targeting cargo ships in the Red Sea have persuaded more carriers to opt for the safer but longer and more expensive journey around Africa via the Cape of Good Hope.
Those detours are raising freight costs and leading retailers to worry about running out of stock. Some factories have suspended work in the absence of needed parts. Should the threat persist, economists think the decline inflation Europe enjoyed last year could slow down, pushing back a potential cut in key interest rates.
“This is clearly one of the major downside risks to growth, and upside risks to inflation,” said Ana Boata, chief economist at insurer Allianz Trade. “We could talk about a recessionary risk.”
The US is pretty safe. They can support Israel until the region burns to the ground with everyone inside, and it would be mostly business as usual.
If a wider war starts, everyone says move 1 would be Iran leveling the Gulf states. Europe gets it’s gas from two places, mostly, and one is already tied up in a war.