The escalating conflict between the US, Israel and Iran is sending shockwaves through global aviation and energy markets, driving up costs and raising fresh concerns over inflation and economic slowdown.

Germany's Lufthansa on Tuesday announced the cancellation of 20,000 short-haul flights through the end of October to cope with soaring fuel costs. The airline also said it would shut down its regional subsidiary, CityLine. According to Lufthansa, these measures are expected to save 40,000 tonnes of aviation fuel.

Lufthansa said these adjustments will reduce unprofitable short-haul flights, adding that it plans to optimize flight schedules at its six major hubs – Frankfurt, Munich, Zurich, Vienna, Brussels and Rome – during the summer. The airline is also taking multiple steps to secure actual fuel supplies and stabilize prices.

The pressure is industry-wide. The International Energy Agency (IEA) estimated last week that Europe's aviation fuel reserves might last only about six weeks, adding that if Middle East tensions continue to disrupt oil supply, many flights could soon be forced to cancel.

At the center of the disruption is the Strait of Hormuz, a critical artery carrying roughly 20% of global oil and gas supplies. Disruptions there are not only affecting crude oil transport but also hitting regions and countries heavily reliant on jet fuel, particularly the EU, causing a ripple effect across global shipping and supply chains.

Many airlines are now prioritizing high-profit, long-haul routes while suspending short-haul and regional flights. Europe imports 25%–30% of its aviation fuel from the Middle East, with a significant volume of cargo also passing through the Strait of Hormuz.

Zhang Monan, a researcher at the China Center for International Economic Exchanges, told China Media Group that Europe's energy shortage could trigger cascading effects across aviation and related industries, severely impacting both the European economy and global recovery.

"Global supply chains depend heavily on transport, and aviation is a critical pillar," Zhang said. "Flight cancellations or soaring fuel costs could extend from airlines to trade, consumption, tourism and services, fueling inflation and economic slowdown, while causing supply chain disruptions." 

She warned that if the conflict persists, the second half of 2026 could see global economic stagnation and further inflationary pressure.

Inflation data already reflect these pressures. The UK's Office for National Statistics on Wednesday reported that consumer prices in March rose to 3.3%, up from 3% in February. The Bank of England had expected inflation to fall below 2% in April, but rising oil and gas prices and the disruption of Hormuz shipments now point to inflation potentially reaching 3.5% between July and September.

In the United States, rising gasoline prices drove a 1.7% increase in retail sales in March, with gas station sales surging 15.5% – a sign of cost pressures rather than stronger demand.

"If the situation with Iran is not resolved quickly, oil and gas prices will rise further," Dean Baker, co-founder of the Center for Economic and Policy Research said. "This will seriously dampen consumer spending, if not actually push it into negative territory."

US officials have warned that energy prices could remain elevated for some time.

US Energy Secretary Chris Wright said that gasoline prices may not fall below $3 per gallon until next year, with average prices currently around $4 – a dollar higher than a year ago. Oil prices, meanwhile, have surged to over $90 per barrel, up from pre-conflict levels near $65.

Reflecting these risks, the International Monetary Fund on March 14 lowered its 2026 global growth forecast by 0.2 percentage points to 3.1%, citing the Middle East conflict while raising inflation projections to 4.4%. 

It warned that if the conflict and high oil prices persist longer, global growth could slow to 2.5% and inflation could climb to 5.4%; in extreme scenarios, global growth could fall to 2%, underscoring the fragile state of the global recovery.