How a US Ground Invasion of Iran Would Impact Europe
American boots on the ground would condemn Europe to a period of prolonged stagflation – and potentially economic catastrophe.
Kyiv Post
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The US-Israeli attack on Iran has been an unmitigated humanitarian, political, and economic disaster. And it could be about to get a lot worse.
Following his bombing campaign’s failure to achieve regime change in Tehran or reopen the Strait of Hormuz, a critical energy chokepoint that Iran has effectively closed, US President Donald Trump has deployed thousands of additional American troops to the Middle East.
These include 6,000 sailors and military personnel on board a carrier strike group led by the USS George HW Bush; more than 1,000 paratroopers from the 82nd Airborne Division; and an amphibious assault unit spearheaded by the USS Tripoli, comprising an estimated 2,200 Marines. They join the 50,000 or so US troops that were already in the region at the start of the war.
Will Trump actually deploy them?
The evidence strongly suggests that he will.
Similarly massive buildups of military power preceded the US attack on Venezuela in January and the US-Israeli initial assault on Iran on 28 February. Trump’s recent messaging – refusing to rule out deploying ground troops while suggesting, without evidence, that negotiations with Tehran are “going very well” – is also eerily reminiscent of what happened just a few weeks ago.
Moreover, the predictably calamitous fallout from the attack on Iran thus far – including soaring energy prices, spiking US government borrowing costs, and a plummeting stock market – obviously failed to dissuade Trump from launching his bombing campaign. Why think that the inevitably disastrous consequences of a ground invasion would be any different?
American elite units successfully extracted a missing weapons systems officer after a high-risk 24-hour search operation in southwestern Iran.
European capitals, however, appear more concerned about the near-converse possibility: that, rather than escalating the conflict, Trump simply declares victory and leaves it up to them to reopen the Strait of Hormuz.
But as Alicia García Herrero, a senior fellow at Bruegel, a Brussels-based think tank, points out, a US withdrawal would likely empower its arch-rival, China, to reopen the Strait through diplomatic channels – which is another reason, she noted, why “the US will have to escalate”.
If the US were to withdraw from Iran without opening the Strait, “China would be the biggest winner ever, because China would open the Strait of Hormuz, and everybody would have to recognize that,” she said.
Grounding growth
Assuming that the US does actually launch a ground invasion, what would actually happen? And what would the impact on Europe be?
No one really knows.
This is largely because it is not clear what ground troops would actually be deployed to do. Would they, for instance, be tasked with seizing uranium at the nuclear facility in Isfahan? Or would they attempt to capture – and hold – Iran’s main oil refining facilities on Kharg Island? Or both? Or neither?
What is almost certain, however, is that a ground invasion – which would likely be done in coordination with regional allies, including Saudi Arabia and the United Arab Emirates – would all but condemn Europe to a prolonged period of stagflation, with even higher oil and gas prices causing inflation to soar and output to weaken.
The European Central Bank’s “baseline” projection that the war will see eurozone inflation surge to 2.6% and growth fall to 0.9% this year would prove far too optimistic, given that its forecast assumed that the conflict would remain “relatively contained”. A series of inflation-suppressing (and investment-killing) ECB rate hikes would also likely be unavoidable.
“It would be extraordinarily negative,” said Jacob Funk Kirkegaard, another senior fellow at Bruegel. Iran, he said, would likely retaliate by destroying Qatar’s Ras Laffan liquefied natural gas (LNG) facility – immediately knocking out a fifth of the world’s LNG supply.
Oil prices would also spike, as markets start to “price in the long-term reduction and destruction of core energy facilities in the Gulf”, he said. European government borrowing costs – already at the highest levels since last decade’s eurozone crisis – would also surge.
“Once you get to ground troops, I think that’s a different story,” he said.
Philipp Lausberg, a senior analyst at the European Policy Centre, said that Europe’s diversification of energy supplies following Russia’s full-scale invasion of Ukraine in 2022, coupled with the recent expansion of US LNG export capacity, could mean that a US ground invasion could also be less damaging than the energy shock following Moscow’s attack on Kyiv.
He also noted that the deployment of ground troops may be less important than the issue of how long the war actually lasts. “I think the question is less what effect escalation has, but what effect prolongation has,” he said.
However, Lausberg also warned that a ground invasion could cause shortages of specific refined oil products, particularly jet fuel, for which European airlines rely on the Persian Gulf to meet roughly a quarter of their demand.
Other potential impacts of a prolonged or escalating conflict include an acceleration of Europe’s deindustrialization, especially in Germany, and a surge in support for European populist parties demanding that governments provide financial support to households and businesses
“This could really cause political upheaval,” Lausberg said. EU governments, many of which already have debt levels far beyond the bloc’s 60% debt-to-GDP ceiling, would also face “a trade-off between protecting households versus fiscal discipline”, he said – which, in the long-run, could even cause markets to question the euro area’s financial stability.
Lausberg also warned that a sustained conflict could catalyze other potential crises. Investors could, for instance, eventually regard energy-hungry AI data centers as financially unsustainable, leading the US stock market – which is overwhelmingly reliant on AI-driven exuberance – to crash.
“We’ve been talking about this AI bubble for quite a while now, and this could be the last straw,” he warned.
Nuclear fears
Experts, however, downplayed the chances that a ground invasion would precipitate the ultimate disaster – namely, the use of nuclear weapons.
“Israel is the only nuclear-armed state in the region, and the likelihood of Israel using nuclear weapons on US soldiers is not [so] high,” said Susi Snyder, director of programs at the International Campaign to Abolish Nuclear Weapons, a Geneva-based, Nobel Peace Prize-winning group.
More likely, Snyder said, is that a ground invasion would represent the start of a “longer-term occupation process” akin to the disastrous US-led invasion of Iraq in 2003.
“We’ve been here before,” she said. “And we know how that turned out.”
Kirkegaard echoed this assessment. “The problem is, once you’ve done it, how are you going to get these troops out again?” he said.
It’s a question that, unfortunately, Trump might well have to answer rather soon.
See the original of this Economy Brief for Euractiv by Thomas Moller-Nielsen here
