Iran Conflict Squeezes European Factories as U.S. and Asian Output Climbs
Why It Matters
American businesses and consumers are navigating a rapidly shifting global economy as the ongoing conflict involving Iran continues to disrupt supply chains, drive up commodity prices, and strain energy markets worldwide. The diverging performance between European manufacturers and their U.S. and Asian counterparts signals both risk and opportunity for American producers — but also hints at inflationary pressures that could reach Main Street.
What Happened
Manufacturing surveys released Monday painted a split picture of the global economy, with European factories feeling the heaviest weight of war-related disruptions while American and Asian plants reported expanding output — largely driven by businesses racing to build inventories ahead of anticipated shortages.
The U.S.-Israeli military campaign, which commenced in late February, has unsettled global trade flows, rattled financial markets, and raised alarms about energy and commodity access — particularly through the Strait of Hormuz, a critical corridor for international oil and gas transit.
The warning signals are not limited to factory floors. Leaders of the International Energy Agency, the International Monetary Fund, the World Bank, and the World Trade Organization have collectively cautioned that the conflict is placing significant strain on global energy supplies.
By the Numbers
- 51.6 — S&P Global’s Eurozone Manufacturing PMI for May, down from April’s near four-year high of 52.2 (any reading above 50 signals expansion)
- 54.0 — The Institute for Supply Management’s U.S. manufacturing PMI for May, the highest reading since May 2022, up from 52.7 in April
- 54.8 — South Korea’s manufacturing PMI in May, the strongest pace since March 2021
- 54.5 — Japan’s factory PMI for May, with firms there logging the sharpest jump in input costs since September 2022
- Four years — The length of time since European raw material cost increases moved at the current pace, according to survey data
Europe Strains Under Rising Costs
Euro area manufacturers posted a fourth straight month of growth in May, but the momentum is fading. Germany’s industrial sector — the largest in Europe — effectively stalled, while French factories contracted for the first time since November. British manufacturers raised prices at the fastest clip since June 2022 as input costs surged.
“Although euro area manufacturers reported an expansion for a fourth successive month in May, the sector is showing signs of struggling under the weight of rising prices and supply disruptions emanating from the war in the Middle East,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
The European Central Bank is expected to raise its deposit rate this month and again later in the year as policymakers attempt to prevent elevated energy prices from feeding broader inflation. Official inflation data due Tuesday is forecast to show prices rising further above the ECB’s 2% target.
U.S. and Asia Build Buffers
In contrast, American factory output reached its highest level in four years during May. New orders hit a four-month peak, supplier delivery times stretched to their longest in four years, and businesses moved aggressively to stock up on materials — all indicators of companies hedging against further conflict-driven shortages. Input costs remained elevated, a signal that inflationary pressures have not eased.
Across Asia, manufacturers similarly sprinted to lock in supplies. China’s private-sector manufacturing gauge extended its growth streak to six consecutive months, while Vietnam, Taiwan, and the Philippines all posted gains. American farmers watching global trade patterns may find these inventory-building trends abroad both a challenge and a potential opening, depending on how commodity flows evolve.
What’s Next
Markets and policymakers will be watching closely as the conflict’s economic ripple effects continue to spread. The ECB’s anticipated rate decisions in the coming weeks will be a key indicator of how aggressively European authorities intend to fight inflation. In the United States, sustained factory expansion could support employment but also keep price pressures elevated heading into the second half of the year.
With international partnerships under strain and global supply chains still adjusting to conflict-driven disruptions, businesses and consumers alike face a prolonged period of uncertainty in commodity and goods markets.
About the Author
