Renewed Iran War Spurs Global Inflation Fears

Summary

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WSJ What’s News — Episode Summary

Episode Title: Renewed Iran War Spurs Global Inflation Fears
Date: July 24, 2026
Host: Luke Varkas, The Wall Street Journal

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Episode Overview

This episode explores the wide-ranging global economic and security consequences of the renewed conflict with Iran. With inflation climbing and governments scrambling to adapt, the hosts and guests discuss how markets, consumers, and policymakers are reacting, especially in Asia and Europe. The episode also highlights significant developments in Cuba’s tourism sector and Europe’s aggressive push to build up domestic defense technology in the face of Russian threats and US pressure.

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Key Discussion Points and Insights

The Iran War and Global Inflation Fears

• Market Turbulence and Inflation Pressures
  The recent escalation in Iran has rattled markets worldwide.
  • Stock indices are “already dealing with their own AI spending related issues” as oil prices surge, pushing inflation worries back into the limelight and causing a selloff in government bonds.
    Quote: "It’s been roughly two weeks now since the reignition of the Iran war and markets aren’t having it." (Luke Varkas, 01:10)
  • US government borrowing costs have hit new highs for President Trump’s second term.

Asia’s Energy Dependence & Inflation Risks

• Acute Vulnerabilities in Asia
  Peter Landers (Asia Business Editor) explains how countries like Japan and South Korea, highly dependent on Middle Eastern energy imports, are particularly exposed.

  • Rising prices for oil and gas threaten multiple sectors, with even small consumer goods (e.g., potato chip packaging) feeling the squeeze.
  • Food price increases could follow if fertilizer and fuel costs rise.
  • Alternative supplies:
    • Japan has made some progress diversifying.
    • China has reduced oil imports recently, helping keep prices in check, but there’s concern over how long this will last. Quote: “There are plenty of reasons to be worried about inflation in Asia... if the war is prolonged, that would bring prices up and a lot of products depend on oil.” (Peter Landers, 02:06)

• Macro impacts on Bonds:
  Rising inflation expectations are pushing up yields and lowering bond prices globally.

European Consumer Sentiment & Energy Crunch

• Shifting Sentiment
  Confidence is fragile.
  • German consumer surveys reveal rising hesitancy and uncertainty about future income.
  • Eurozone sentiment is improving slowly but still below pre-war levels.
  • The ECB is holding rates steady, warning that the full inflationary impact of the energy shock isn’t yet visible. Quote: “The European Central Bank held its key interest rates steady, saying that the full inflationary impact of the energy shock had yet to play out.” (Luke Varkas, 04:20)

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Cuba: Tourism Hit by US Sanctions

• Melia Hotel Chain Withdraws
  Spanish hotel giant Melia is pulling out of Cuba, highlighting economic collapse exacerbated by US sanctions.

  • Closure affects 30+ hotels, following previous cutbacks and similar moves by other foreign companies (Iberostar, Visa, MasterCard).
  • Tourism, once a key Cuban industry, is being devastated by operational, legal, and financial difficulties. Quote: “It’s due to operational, legal, economic and financial difficulties. And that’s all to do with the US Sanctions which have been affecting the country.” (Yousef Khan, 04:39)

• Trigger:
  A recent Trump executive order forced foreign investors to choose between Cuban business ties and risk of secondary US sanctions.

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US Justice Department News

• Media Subpoenas Withdrawn
  DOJ has pulled subpoenas for New York Times reporters after a judge questioned procedures relating to a Qatar-linked story.
• NJ Non-Citizen Voting Tension
  After a software error enabled 6,000+ non-citizens to register, 400+ cast ballots in New Jersey. Federal prosecution is being considered, but the state is resisting DOJ requests for personal data.

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Europe’s Defense Spending & Sovereignty

Challenges and Choices in Defense Procurement

• US vs. European Solutions
  European countries face a critical decision: buy US arms off-the-shelf or invest in creating domestic products, a longer, pricier endeavor.

  • Germany’s withdrawal from a collaborative next-gen fighter jet leaves only one major European project, led by the UK, Italy, and Japan. Quote: “Last month, Germany pulled the plug out on its next gen jet project that had been working on with France, basically leaving behind a sole project that is being worked on by the UK, Italy and Japan.” (Luke Varkas, 08:09)

• Sovereignty Concerns
  Johnny Morton (BAE Systems) stresses sovereign capability:
  Quote: “There’s a lesson from Ukraine... the ability to adapt in a sovereign way at your own pace is really important. You can’t rely on others necessarily... then having the ability to have your own sovereign capability is key.” (Johnny Morton, 08:49)

  • Still, much of Europe's spending is fragmented among countries, reducing potential impact.

• Ongoing US Reliance
  Despite investments, Europeans continue to line up for US F35 jets, missile systems, etc.
  Quote: “Europeans also continue to line up for US armaments such as F35s and HIMARs and Tomahawks.” (Alastair Macdonald, 09:29)

  • The failed German-French-Spanish jet project is cited as an example of the challenges of cooperation.

• Risks of US Dependence
  Access to software, spare parts, and upgrades for US-supplied systems could be jeopardized if political relations sour. Quote: “The Americans could make life very hard for you using an F35 because you wouldn’t have the software updates, you wouldn’t have the spare parts, you wouldn’t have the expertise basically.” (Alastair Macdonald, 10:52)

Innovation and New Players in Defense Tech

• Booming Defense Tech Startups
  Europe is seeing a surge of new, well-funded defense tech companies like Quant Systems (Germany), Cambridge Aerospace (UK), as well as Ukrainian newcomers Firepoint and Skyfall.
  Quote: “There is a very fertile ground because there’s a lot of cash around for these new defense tech companies, and they’re everywhere.” (Alastair Macdonald, 12:18)

  • These new entrants are more welcome in Europe than in the US, where traditional primes (Lockheed, Boeing) dominate.

• Rise of Uncrewed Aircraft and Drones
  Lower barriers to entry are leading to a proliferation of companies producing drones and counter-drone technologies. Quote: “With drones, it’s obviously a lower barrier to entry... and you have counter drone measures, which in itself is a massive, massive industry.” (Alastair Macdonald, 13:17)

  • Example: Companies repurposing bird-tracking radar to detect drones. Quote: “Met a company that was technology that was made to locate birds and now to spot small drones.” (Luke Varkas, 13:38)

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Notable Quotes & Moments

| Timestamp | Speaker | Quote | |-----------|----------------------|---------------------------------------------------------------------------------------------------------------------| | 01:10 | Luke Varkas | "It’s been roughly two weeks now since the reignition of the Iran war and markets aren’t having it." | | 02:06 | Peter Landers | "There are plenty of reasons to be worried about inflation in Asia...if the war is prolonged, that would bring prices up…"
| 04:20 | Luke Varkas | "The European Central Bank held its key interest rates steady, saying that the full inflationary impact of the energy shock had yet to play out." | 04:39 | Yousef Khan | "It’s due to operational, legal, economic and financial difficulties. And that’s all to do with the US Sanctions which have been affecting the country." | 08:49 | Johnny Morton (BAE) | "There’s a lesson from Ukraine...the ability to adapt in a sovereign way at your own pace is really important...having the ability to have your own sovereign capability is key." | 09:29 | Alastair Macdonald | "Europeans also continue to line up for US armaments such as F35s and HIMARs and Tomahawks." | | 10:52 | Alastair Macdonald | "The Americans could make life very hard for you using an F35 because you wouldn’t have the software updates, you wouldn’t have the spare parts, you wouldn’t have the expertise basically." | 12:18 | Alastair Macdonald | "There is a very fertile ground because there’s a lot of cash around for these new defense tech companies, and they’re everywhere." | 13:17 | Alastair Macdonald | "With drones, it’s obviously a lower barrier to entry...and you have counter drone measures, which in itself is a massive, massive industry."

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Important Timestamps

• 00:33 — Episode headlines: global inflation fears, Cuba tourism, European defense spending
• 01:09 — Market and bond turmoil post-Iran war escalation
• 02:06–03:37 — Asia’s oil dependence and inflation vulnerabilities
• 04:20 — European consumer and ECB reactions
• 04:39 — Melia exit and Cuba’s tourism collapse
• 07:43 — European defense spending, Farnborough Airshow insights
• 08:09–13:50 — European defense sovereignty: US reliance, new tech players, and uncrewed systems

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Conclusion

The episode offers a brisk but rich look at how renewed conflict with Iran is pressuring global markets and policymakers, with strong emphasis on energy-driven inflation, consumer anxiety, and defense industry shifts. Europe’s defense sector is showcased at a turning point, with both challenges and a burst of innovation. These developments are intertwined with larger themes of economic sovereignty, security dependencies, and the unpredictable knock-on effects of geopolitical crises.

Transcript

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[Alastair Macdonald]

global

[Luke Varkas]

markets reckon with the prospect of prolonged conflict in the Middle east and rising inflation. Plus hotel chain Melia pulls out of Cuba in a blow to the island's vital tourism sector, and Europe arms up with its own homegrown defense technologies to counter US Dependence.

[Alastair Macdonald]

There are still some things that the US Is way ahead of, and we've seen that in the clamor for Patriot missiles, Europe's just not there. But that's also a perfect example of where it's trying. You have the European system, the sampd, coming up with a new upgrade, and then you have numerous smaller companies who are coming up with their own Systems.

[Luke Varkas]

It's Friday, July 24th. I'm Luke Varkas for the Wall Street Journal and here is the AM edition of what's news, the top headlines and business stories moving your world today. It's been roughly two weeks now since the reignition of the Iran war and markets are aren't having it. With global stock indices already dealing with their own AI spending related issues, oil prices have now come roaring back, returning inflation to the spotlight and stoking a government bond selloff that sent US Government borrowing costs to the highest level of Trump's second term. And those concerns are even more pronounced in Asia, where I'm joined now by Journal editor Peter Landers. Peter in the US we've seen 10 year t Note yields moving higher. Something similar is occurring in Asia as well, where inflation worries have been more pronounced since the start of the war almost five months ago. Right, Right.

[Peter Landers]

There are plenty of reasons to be worried about inflation in Asia. Countries like Japan, South Korea and others import oil and natural gas from the Middle east. And so if the war is prolonged, that would bring prices up and a lot of products depend on oil. Japan has been worried about naphtha and other petrochemicals that are made ultimately from crude oil. And there was even the famous case of the potato chip bag that the company made black and white instead of color claiming that they would save a little bit of money on the material costs of producing a color potato chip bag. It just shows the way the concerns about higher costs are seeping through economies in this region. Food prices could go up if fertilizer and fuel cost more. So it does depend on how long this goes on and also whether they're able to get alternative supplies. And we have seen some progress on that front in Japan and elsewhere. China surprisingly reduced its oil imports from the early days of the U. S. Iran war, and that has helped keep oil prices somewhat under control. But I think people are going to be watching going forward whether China eventually has to increase its imports again. It maybe runs out of its stockpiles. So all of these are factors that make inflation a concern. And of course, in general, if you think inflation is going to rise in the next year, that means the bond prices will go down, bond yields will go up.

[Luke Varkas]

Peter Landers is the Journal's Asia business, finance and economics editor. Peter, as always, thanks so much.

[Peter Landers]

You bet.

[Luke Varkas]

And outside of Asia, the prospects of a prolonged war with Iran and ensuing higher inflation is starting to weigh on European consumer sentiment. That's as a fresh survey of German households has identified increasing hesitancy around spending and uncertainty about future income prospects. A broader eurozone indicator is showing a third straight month of improving sentiment, though confidence remains below pre war levels. Yesterday, the European Central bank held its key interest rates steady, saying that the full inflationary impact of the energy shock had yet to play out. Effective today, Spanish hotel chain Melilla is pulling out of Cuba. It's the latest blow to the island's collapsing economy, which has been hit hard by US Sanctions, leading a number of international international businesses like Melia to pull up stakes. As Journal reporter Yousef Khan explains, in

[Peter Landers]

June, it said that it was cutting 15 of those hotels in light of the energy problems and the problems associated with the sanctions in the country. Now it's extending that to all of those. So it's just over 30 hotels. They've said specifically in terms of this round of closure, it's due to operational, legal, economic and financial difficulties. And that's all to do with the US Sanctions which have been affecting the country. This closure follows other foreign companies in Cuba pulling out due to the sanctions. You've got other hoteliers like Iberistar and then payments providers like Visa and MasterCard and then mining companies as well, which are all finding it difficult to operate in the country because of the current sanctions on Cuba from the U.S. tourism was one of the key industries in the country prior to the sanctions coming into place. And these hotel closures show how the tightening restrictions and the loss of power and energy in the country are really affecting one of its key industries in the economy.

[Luke Varkas]

In May, President Trump signed an executive order, effectively forcing foreign investors to choose whether to continue doing business with entities tied to Cuba's military or risk secondary sanctions. The Justice Department has agreed to withdraw subpoenas targeting several New York Times reporters. The decision came after a federal judge questioned prosecutors on whether they followed proper procedure following articles that were published about a jet which was gifted to the US by the Qatari government. Times counsel David McGraw said he was pleased with the department move. Meanwhile, tensions between the DOJ and New Jersey are escalating after the state said that it wouldn't hand over personal details on non citizens who were able to illegally cast ballots in an election there. Justice Department officials said yesterday they were still weighing whether to bring charges against people who voted. Under federal law, noncitizens face criminal penalties for voting, and they can also be deported for doing so. Last week, New Jersey's governor said that a serious software error in the state's motor vehicle system in 2023 and 2024 led to more than 6,000 people being registered to vote even after they indicated they were not US citizens. Some 400 non citizens went on to cast ballots. Coming up, we'll head to one of the world's largest air shows to follow the money as Europe sinks billions into new defense technology. That's after the break.

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[Luke Varkas]

Europe is arming up, staring down the threat from Russia and pressured by Washington to boost defense spending, countries are opening up their wallets. But who are they going to buy from? It's a question that Journal reporter Alastair Macdonald has been investigating. And we both attended Farnborough International Airshow outside of London this week to try and take a pulse of where the money's flowing and towards what. Hey Alistair, thanks for being with us.

[Alastair Macdonald]

Hi Luke.

[Luke Varkas]

So just to boil this down, European countries basically face a choice over the next decade. They can either buy these off the shelf jets from the United States or pursue the very costly and time consuming process of developing their own. Last month, Germany pulled the plug out on its next gen jet project that had been working on with France, basically leaving behind a sole project that is being worked on by the uk, Italy and Japan, that being now kind of the only European next gen jet project that remains. We both spoke to Johnny Morton of Britain's BAE Systems, which is a part of that remaining project, and I asked him if it was still worth pursuing.

[Alastair Macdonald]

There's a lesson from Ukraine you can take away, and that is the ability to adapt in a sovereign way at your own pace is really important. You can't rely on others necessarily, and that's anybody, if they don't have the same priorities as you. So if defence of UK homeland is the number one priority for any government, any country, which I think it is, then having the ability to have your own sovereign capability is key.

[Luke Varkas]

Alastair, what do you make of that? Are most European countries seeing things that way with a big focus on sovereign defense solutions?

[Alastair Macdonald]

Yeah, I think they are. And Europe is clearly building more weapons and ammunition, but that's in large part because it's spending more. Whether it's becoming less reliant and increasing its own sovereignty on the US and elsewhere is a different question. There are incremental examples of this, such as the Danes choosing a European missile defence system over Patriot, and European nations investing in their own ballistic missile programs and setting up a lot more explosive factories. But Europeans also continue to line up for US armaments such as F35s and HIMARs and Tomahawks. What happened? You referenced it there with the failure of the German, French, Spanish, Spanish FCAS program is an example of where it can go wrong.

[Luke Varkas]

I mean, has that sort of take the wind out of the sails of European sovereignty when you were taking the pulse at Farnborough?

[Alastair Macdonald]

I don't think it takes the sales. I think it reminds the Europeans that their spending is less than the sum of its parts, that it's fragmented over a lot of countries. The overall wallet is very large, but it's fragmented. And then you have countries like the French who sort of want to take control and want it to be a French project. So you're always going to get a bit of that. If your taxpayers investing billions in something. You want the headquarters, you want the jobs, you want the ip, you want it to be in your country.

[Luke Varkas]

Yeah. And Alastair had been concern in Europe over the last year about that off the shelf American jet, the F35 being so reliant on American technology and whether that was a sort of sovereign risk for Europe in the future.

[Alastair Macdonald]

Well, the Americans say an absolute flat out no, but it's almost irrelevant as a lot of officials will say. The Americans could make life very hard for you using an F35 because you wouldn't have the software updates, you wouldn't have the spare parts, you wouldn't have the expertise basically. So it could be very, very problematic for the Europeans if that was to happen.

[Luke Varkas]

And one of the ironies of all of this, Alistair, that BCG's Brian Hirschman explained to me, is that the F35 was supposed to kind of address some of those sovereignty concerns. It had multiple partner nations involved. It had sort of a common supply chain up until Europe and the US got sideways leading countries kind of back to the drawing board. It is being seen as very American. I think what it is going to do is push the Europeans to start to get serious about their own platform developments. I mean the European market is frothy to say the least, right? They've announced $2 trillion in spending. There isn't a supply market in all of Europe that can deliver that kind of material and platforms. So something's got to change, right? The supply base obviously has to accelerate for 1, 2 is I think you're going to see more non traditional defense companies get into defense work. I should be clear that by the end there Brian was talking about a lot more than just next generation jets but all sorts of defense products being made in new ways. He says that's happening. Is that what you're seeing Alistair?

[Alastair Macdonald]

Yeah, I think that's correct. In Farnborough you saw a number of the sort of the new and very well capitalized defence tech companies. You saw the likes of Quant Systems from Germany and Cambridge Aerospace from the uk. And also you saw the presence of Ukraine's new entrants such as Firepoint and Skyfall. And in fact indeed I was talking to the founder of Shield AI which is a US defense tech company and he said that European defence ministries are actually a lot more open to new entrants than the us. The idea being that the US is sort of standing by its primes. It's more sort of legacy companies, it's lockheed and Boeing, RTX etc. So I think that's right. I think there is a very fertile ground because there's a lot of cash around for these new defense tech companies, and they're everywhere.

[Luke Varkas]

And maybe a helpful force here is that as opposed to these super expensive, super complex manned jets that the solutions we're talking about more right now, these uncrewed planes, drones, drone countermeasures, even missiles or rockets, maybe more companies can build those than those uber complex projects.

[Alastair Macdonald]

Well, that's right. With drones, it's obviously a lower barrier to entry than you have counter drone measures, which is in itself is a massive, massive industry. And you know, I've written before about interesting examples. For instance, there's been, you know, some Canadian students who have come up with an acoustic gun that can disable drones by messing with its gyroscope.

[Luke Varkas]

Met a company that was technology that was made to locate birds and now to spot small drones. So there's a lot of technology there.

[Alastair Macdonald]

Yeah, I think I know that company. Exactly. They're a radar company that started off with birds and now they're moving to drones. It's a perfect example.

[Luke Varkas]

Journal reporter Alastair MacDonald, a pleasure as always. Thanks so much.

[Alastair Macdonald]

Thanks very much, Luke.

[Luke Varkas]

And that's it for what's news for this Thursday morning. Today's show was produced by Hattie Moyer and Daniel Bock. Our supervising producer is Sandra Kilhoff. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Otherwise, have a great weekend and thanks for listening.

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