Brussels Edition: Energy anxiety

The impact of the US-led war on Iran on Europe dominated summit discussion

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Welcome to the Brussels Edition. I'm Suzanne Lynch, Bloomberg's Brussels bureau chief, bringing you the latest from the EU each weekday. Make sure you're signed up. The energy crisis spurred by the war in the Middle East dominated yesterday's summit in Brussels amid mounting anxiety about the economic impact of a prolonged crisis. EU leaders, including Italian Prime Minister Giorgia Meloni, warned the room that the energy situation is critical. The European Central Bank said a prolonged disruption would push euro-zone inflation to 6.3% and trigger a brief recession. As the summit wrapped up, heads of state and government called for short-term measures to ease the turmoil. But they stressed the importance of preserving the "essential role" of the EU's Emissions Trading System, the centerpiece of the bloc's climate efforts. German Chancellor Friedrich Merz — who triggered a sell off in the carbon market last month after he floated "postponing" the system — told reporters after the meeting that the ETS needs fine-tuning rather than fundamental change. That offered some relief to carbon markets this morning, the price of carbon jumping the most in two years. Cypriot President Nikos Christodoulides in a Bloomberg Television interview, March 20, 2026 Nevertheless, fears of an energy supply crunch after Iran hit a vital gas plant in Qatar, are real. "All countries will be negatively influenced if the situation continues," Cypriot President Nikos Christodoulides told Bloomberg Television following the summit. "If we don't deescalate, we don't know how the situation will develop, and for sure, the repercussions are going to be serious in all aspects of the economy." Christodoulides, whose country holds the EU's six-month rotating presidency, also thanked countries like Greece, Spain, the Netherlands and France for sending support after a drone hit a British base at Akrotiri on March 1. But he said the time for action was now for Article 42.7, the mutual assistance clause of the EU treaties, which stipulates that member states should provide aid and assistance to another who is a victim of armed aggression. "We need to give substance on Article 42.7, what we are going to do if a member state triggers" the clause, he said, adding that it would be discussed at next month's informal EU summit.  Recent geopolitical turbulence and questions about the US commitment to NATO have prompted discussion of the relatively obscure clause as the EU tries to bolster its power in the security and defense sphere. The Latest The ECB will need to consider hiking interest rates as soon as next month if price pressures build further due to the Iran war, Governing Council member Joachim Nagel told Bloomberg. Separately, the ECB is asking lenders about fallout from the Iran war on their operations and clients, we're told. US regulators' plans to depart from new global rules on bank trading capital are already fueling calls for watchdogs in Europe to do something similar. Slovenia is heading into a tight election on Sunday. The final opinion poll showed the party of a nationalist leader Janez Jansa — long seen as a favorite to win the vote — slipping behind the center-left party of Prime Minister Robert Golob, making the outcome too close to call. Spain's government approved a €5 billion aid package to ease the economic effects of the Iran war, including tax reductions on energy. Seen and Heard on Bloomberg ECB Governing Council member Gabriel Makhlouf didn't rule out an increase in interest rates next month should data signal the need for such a step, though said it's impossible to commit with uncertainty so high. "If the facts point to us having to take action, we will absolutely take action," he told Bloomberg TV. "But in the end it depends on the evidence and quite clearly, we are six weeks away from having to make another decision. Chart of the Day As markets absorb the ramifications of the attacks on key energy infrastructure in the Middle East, the ECB warned that inflation could peak at 6.3% in the first quarter of 2027 under a severe version of how events in Iran may play out. The ECB said Thursday that its extreme scenario — published alongside quarterly economic projections — would also trigger a short recession in the 21-nation bloc. Coming up Second-round municipal elections in France this weekend CPAC (Conservative Political Action Conference) event takes place in Budapest, Saturday Parliamentary elections in Slovenia on Sunday Western German state of Rhineland-Palatinate to vote on Sunday Final Thought Honking horns and screeching tires used to be a cliched scene-setting device for writers describing Paris. Those sounds no longer define a city where cars have taken a back seat. Visitors to Paris will discover that it's a dramatically different place than a decade ago: lines of bikes and throngs of pedestrians where lanes were once jammed with cars, greenery encroaching on former pavement, summer swimming in the once-grimy Seine river – and a corresponding drop in air and water pollution. The shift is the result of a spate of policies under outgoing Paris Mayor Anne Hidalgo. The River Seine on Wednesday, Jan. 7, 2026. Photographer: Benjamin Girette/Bloomberg Like the Brussels Edition? 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