FX.co ★ War in Iran drags down wage growth in Western countries

The armed conflict in Iran, which has unleashed large disruptions to hydrocarbon supplies from the Middle East and a rapid rally in energy prices, has dealt a serious blow to the stability of Western economies. According to an analytical report at the Financial Times, one of the key negative consequences of the ongoing energy crisis has been a sharp slowdown in the growth of real household incomes in developed countries. While inflation has been accelerating, driven by higher fuel prices, household purchasing power has been waning, effectively wiping out two years of gradual income recovery following previous macroeconomic shocks.

Wage growth in the United States officially lagged behind the pace of consumer inflation: pay rises averaged 3.6% versus an inflation spike of 3.8%. Similar negative trends are being recorded in the United Kingdom, where real income growth for households in Q1 has approached zero. Eurozone countries are also at risk of a prolonged recession after facing shortages of oil and liquefied natural gas due to blocked shipping routes in the Persian Gulf, calling into question Europeans’ post‑2022 recovery in living standards.

Experts warn that if the Strait of Hormuz remains isolated, the global energy market will inevitably face a new wave of destabilization this coming summer. Paul Diggle, chief economist at asset manager Aberdeen, notes that the usual seasonal increase in fuel demand during the holiday season will further strain disrupted Middle Eastern supply chains. A worsening imbalance between supply and demand in global markets could push Brent crude prices toward a stunning $180 per barrel, further spurring inflation in developed economies.