Middle East Conflict Reshapes Europe’s Economy
The Middle East conflict is raising pressure on Europe
The conflict in the Middle East is beginning to exert measurable pressure on Europe’s economy and commercial real estate, even though the region is less exposed to an immediate gas shock than some other parts of the world. In its March 31, 2026 update, Cushman & Wakefield says Europe is relatively insulated from direct LNG supply disruption because only around 10% of its LNG imports come from Gulf states. That does not remove the broader impact transmitted through oil prices, transport costs, inflation, bond yields and business uncertainty.
The key risk channel for Europe runs through disruption in the Strait of Hormuz rather than through a direct collapse in gas inflows. Cushman & Wakefield says the strait remains effectively closed, with only a small proportion of normal maritime traffic allowed to pass. Before the conflict, roughly 20% to 25% of global seaborne oil and LNG moved through Hormuz, making the disruption a global trade problem as much as an energy one.
Why Europe remains vulnerable even without a direct gas shortage
Even with limited direct dependence on Gulf LNG, Europe remains highly sensitive to oil prices and therefore to fuel, logistics and final goods inflation. Cushman & Wakefield says Brent crude was still comfortably above $100 a barrel at the time of writing, albeit below recent highs. That has already translated into higher pump prices, with fuel costs rising by as much as 68% in some countries.
Europe is getting only partial relief from timing. The crisis hit at the end of winter, when heating demand is falling, but gas storage levels are seasonally lower, making replenishment ahead of the next winter cycle more important and potentially more expensive. So even without an immediate physical shortage, Europe faces a renewed price risk in energy markets.
Inflation is again becoming Europe’s central economic risk
Cushman & Wakefield argues that the conflict has now lasted long enough for the economic effects to become measurable. The first transmission channel is inflation, starting with fuel and then spreading through second- and third-order effects across supply chains and production. The report stresses that Hormuz matters not only for oil and gas, but also for petrochemicals, fertilisers and inbound shipments of food, pharmaceuticals and technology into the Middle East. That gives the disruption a wider industrial dimension.
The report highlights risks of fertiliser shortages for the Northern Hemisphere planting season, possible disruption to packaging materials that rely on petrochemicals, and even more severe scenarios in which manufacturing plants may be forced to halt production. It says March baseline forecasts that assumed the conflict would end by April now look too optimistic. Inflation is therefore expected to rise materially, and bond markets are already reflecting that shift through higher yields.
European central banks may turn more cautious
One of the most important conclusions in the report is that the renewed inflation impulse complicates the rate outlook in Europe. Cushman & Wakefield says central bank responses are likely to vary, but the broad direction is toward greater caution. The report states that the European Central Bank has already concluded its rate-cutting cycle, and that rising inflation risks could open the door to tighter policy if price pressures prove persistent. The Bank of England, by contrast, is described as having more room to maneuver and may decide that simply not cutting further this year is enough.
At the same time, the macro backdrop is weakening. Cushman & Wakefield says regional growth in 2026 is now likely to come in below the latest forecast of 1.5%. That leaves Europe facing a more uncomfortable mix of slower growth and higher inflation, the combination that tends to matter most for financing conditions, consumption and commercial property.
Logistics and industrial real estate feel the shock first
Within commercial real estate, the fastest effects are expected in logistics and industrial property. Cushman & Wakefield says higher fuel prices and selective shortages are affecting the movement of goods both domestically and internationally. Diesel prices are especially important for trucking, while higher marine insurance costs are adding pressure to seaborne trade. That points to higher goods prices, second-round inflation effects and occasional shortages of specific products.
The report also flags construction risk. Because the construction industry is not immune to these disruptions, Europe could see an even slower pipeline of new supply than expected at the start of the year. At the same time, the report notes that supply chains are more flexible than before the pandemic shock, having shifted from just-in-time to just-in-case models with higher inventories, broader supplier diversification and more digital visibility tools. That could soften the blow, but not eliminate it.
Retail and offices face different but connected pressures
Retail faces a dual squeeze. Goods become more expensive to transport and stock, while households are forced to devote more of their budgets to non-discretionary spending, especially fuel and essentials. Cushman & Wakefield expects consumers to adopt more conservative spending patterns, prioritising essentials and potentially rebuilding savings buffers. That implies weaker discretionary demand across retail categories that depend on consumer confidence and flexible income.
The office market is expected to react in a more localised and uneven way in the near term. In some locations, employees may work from home more often to avoid higher commuting costs, especially where public transport is not a viable substitute. Broader pressure on office demand would take longer and would mainly emerge if the conflict were prolonged enough to weaken labour markets and economic activity more materially. For now, Cushman & Wakefield says relatively strong business confidence suggests that risk is still some distance away.
Investment volumes are holding up, but caution is rising
Europe’s investment market began 2026 on a relatively solid footing. Cushman & Wakefield says preliminary commercial real estate investment volumes for the first two months of the year were about $27 billion, down 15% year on year, although the firm notes that reporting lags mean the final number is likely to be revised higher. That suggests the market has not stalled, but it is operating with increasing caution.
The report does not expect immediate strong upward pressure on property yields purely from the current conflict, given the limited yield movement seen during the broader rate-cutting cycle. Still, it warns that geopolitical uncertainty usually widens risk premiums, makes capital deployment more selective and can temporarily slow deal velocity as investors revisit entry and exit assumptions. Over the longer term, that could shift attention toward more resilient and defensive assets.
What it means for Europe and CRE
Cushman & Wakefield’s central conclusion is that the impact on European commercial real estate will be uneven and mainly macro-driven. The conflict does not automatically reverse the market, but it raises inflation risks, increases volatility and complicates the outlook for rates and growth. For logistics and industrial assets, the issue is transport costs and supply resilience. For retail, it is household purchasing power. For offices, it is commuting behaviour and the later path of employment. For capital markets, it is the repricing of risk and the timing of decisions.
As International Investment experts report, Europe’s main risk in 2026 is not a simple repeat of the 2022 gas shock but a more complex combination of expensive oil, inflation transmitted through logistics and manufacturing, more cautious central banks and slower growth. For commercial real estate, that means continued sensitivity to macro data, transport costs and consumer behaviour, with the strongest resilience likely to come from assets that combine operational flexibility with defensive income characteristics.
As International Investment experts report, against the backdrop of turbulence across several neighboring destinations, Georgia is strengthening its position as one of the safest and most understandable markets in the region for both tourists and investors. The country continues to post solid growth in international travel: in 2025, the number of international visitors reached 5.8 million, up 7% year on year, while tourist-type visits rose 8.4% to 5.5 million. Investment activity is also expanding. According to preliminary Geostat data, foreign direct investment in Georgia totaled $1.69 billion in 2025, up 7.6% from the previous year. Capital is increasingly flowing into sectors aligned with this new demand cycle: real estate, transport and logistics, energy, hospitality, and related urban infrastructure. During 2025, major FDI destination sectors included real estate activities, transport, energy, manufacturing, information and communication, as well as hotels and restaurants, pointing to stronger investor interest in assets benefiting from tourism growth, Georgia’s transit role, and continuing urbanization. For Georgia, this means that the perception of safety is no longer only a reputational advantage, but a direct driver of demand for hotels, aparthotels, residential property, logistics assets, and service infrastructure.
FAQ
Why is Europe considered less exposed to the gas shock?
Because Cushman & Wakefield estimates that only around 10% of Europe’s LNG imports come from Gulf states, leaving the region more diversified than direct Hormuz-dependent markets.
Why is the conflict still hurting Europe?
Because the main transmission channels are oil prices, fuel costs, logistics, fertilisers, petrochemicals, inflation and rising yields rather than only direct gas supply.
What does the report expect for Europe’s 2026 growth?
Cushman & Wakefield says growth is now likely to come in below the latest 1.5% forecast.
Which property sectors feel the shock fastest?
The report points first to logistics and industrial real estate because they are most exposed to fuel costs, freight disruption and supply chain stress.
What is happening to European CRE investment?
Preliminary January-February 2026 investment volume was about $27 billion, down 15% year on year, though the market has not frozen and data may later be revised upward.