G7 meeting collapses over Iran issue, diplomacy is ruined

The Iran war will be one of the most important diplomatic tests in modern history for the G7 countries.

The group, which is made up of the United States, Canada, France, Germany, Italy, Japan and the United Kingdom, has been under tension during both of U.S. President Donald Trump’s terms.

But the decision by Washington and Tel Aviv to attack Iran on February 28, triggering a widespread wave of attacks across the Middle East and international military bases in the region, will test the alliance under extreme circumstances.

France, which currently holds the G7 presidency, convened an emergency meeting to address Middle East issues. Finance Minister Laurent Lescure said he and G7 central bank governors would meet in the coming days.

“I have been in discussions with various counterparts, especially[U.S. Treasury Secretary]Scott Bessent, to discuss the situation so that we can assess the possible response that may be required,” he said in an interview with France Info Radio.

The conflict between the United States and Spain will be a particular source of tension. President Trump has threatened to “cut off all trade with Spain” as Madrid refuses to allow U.S. troops into the base, and Bessent told CNBC that “the Spaniards are putting American lives at risk.”

European leaders rallied around Spanish Prime Minister Pedro Sánchez to defend Europe’s sovereignty. However, the G7 countries are also moving on their own paths to overcome this international conflict.

With an election year just around the corner, France is making particularly high-stakes bets.

President Emmanuel Macron condemned the US-Israeli-led attack as “outside international law,” but also pledged to strengthen nuclear weapons to protect Europe and send an aircraft carrier to the Mediterranean Sea as a deterrent.

But the outlook for how a sustained rise in energy prices could affect domestic inflation at a sensitive time for the economy is also influencing Macron’s response. “In conflicts that have global implications, it is clearly essential that we work together,” said Finance Minister Laurent Lescure, who chairs the G7 meeting.

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Germany has become more diplomatic, with Chancellor Friedrich Merz saying before a meeting with President Trump in Washington, D.C., last week that “now is not the time to lecture our partners and allies.”

But the economic realities of a prolonged war in the Middle East are already worrying Bundesbank President Joachim Nagel, who is scheduled to attend this week’s G7 meeting. “This war is a strain on the economies of Germany, Europe and the entire world,” he told CNBC’s Annette Weisbach.

In the UK, Prime Minister Keir Starmer has been criticized for his cautious response to the Iranian attack.

In a speech last week, he said Britain’s so-called “special relationship” was “currently working” but said he supported his decision not to take part in the attack on Tehran.

Meanwhile, Mr Trump sent a scathing message to Mr Starmer over the weekend.

“The United Kingdom, once our great ally, and perhaps the greatest of them all, is finally seriously considering sending two aircraft carriers to the Middle East. That’s it, Starmer, we don’t need carriers anymore,” Trump said in a post on Truth Social.

“But we will not forget. We don’t need people going to war after we have already won!” Trump added.

British Chancellor of the Exchequer Rachel Reeves, who is due to attend a G7 meeting in the coming days, was forced to defend her Spring Statement as “the right economic plan in a world of greater uncertainty” despite rising energy costs.

Against this backdrop of complex diplomatic developments, the market has weathered the volatile period with a firm focus on the energy sector. As investors brace for more headlines during the upcoming trading sessions, here are some key takeaways on what to expect from the market.

Goldman Sachs: “Energy supply disruptions are creating an unfavorable combination of higher energy prices and weaker risk sentiment, with a sharp rise in natural gas prices in Europe particularly noteworthy for European currencies. Rising gas prices will increase short-term inflationary pressures on European and Asian economies, but the impact on the US is likely to be limited given its dependence on domestic supplies.”

Barclays: “Despite rising tensions, most non-U.S. stock indexes remain near highs, leaving the market exposed to further deterioration. Stocks 600 It could drop by about 8% to about 550. ”

Deutsche Bank: “The situation in Iran is currently the focus of the market, but, at least for now, it has not reached levels that historically warrant a recession or further market decline.”