ECB President and US Treasury Secretary Clash at G7 Meeting! Lagarde Questions Bessent's Overly Optimistic View on Iran War Impact
On Monday, Lagarde questioned Bessent's optimistic assessment during a G7 video conference that the economic impact of the Iran war would be short-lived. She stated that due to the extensive damage already inflicted on infrastructure, the impact of this shock will persist for a considerable time. This clash with Bessent is not Lagarde's first friction with a US official this year. In January, she left a speech by US Commerce Secretary Howard Lutnick midway at the World Economic Forum, deeming his anti-European remarks too intense
According to media reports citing people familiar with the matter, European Central Bank President Christine Lagarde, at a meeting of Group of Seven (G7) senior officials, questioned US Treasury Secretary Scott Bessent's optimistic judgment that the economic impact of the Iran war would be short-lived.
People familiar with the matter stated that Bessent downplayed the shock from weeks of conflict in the Middle East, viewing disruptions—including the "de facto closure" of the Strait of Hormuz—as merely temporary.
However, Lagarde countered this. During Monday's G7 video conference, she told Bessent and the attending central bank governors, finance ministers, and energy ministers that because a large amount of infrastructure has already been destroyed, the impact of this shock will persist for a very long time.
Media reports noted that the clash reflects growing tension between the US and Europe—with Europe being more vulnerable to soaring energy prices and shipping disruptions resulting from a conflict it did not initiate.
The economic pain is already apparent: data released Tuesday showed that Eurozone inflation in March saw its largest increase since the outbreak of the Russia-Ukraine conflict in 2022. Meanwhile, Eurozone governments are lowering their economic outlooks, hoping that a year originally expected for recovery will not turn into a recession.
Recently, Bessent has attempted to soothe US public concern over the conflict, saying oil markets are well-supplied and stating that the strait between Iran and other Gulf nations should gradually resume navigation.
On the other hand, Lagarde has continued to issue warnings. The ECB's severe scenario forecast—based on severe energy supply disruptions lasting through the end of 2026 and further large-scale infrastructure damage—shows that inflation could peak at 6.3%.
Lagarde said in an interview: "We are facing a real shock—its magnitude may exceed what we currently imagine. So many facilities have been destroyed in oil extraction, refining, and distribution that it is impossible to recover within a few months."
This clash with Bessent is not her first time experiencing friction with a US official this year. In January, Lagarde left a speech by US Commerce Secretary Howard Lutnick midway through at the World Economic Forum because she considered his anti-European remarks "too intense."
Monday's G7 meeting was part of global efforts to ease the situation, with some countries having decided to release emergency oil reserves. G7 nations stated they are prepared to take all necessary measures to maintain the stability and security of energy markets. They also emphasized the importance of coordinated international action to mitigate spillover effects and maintain macroeconomic stability.
