ECB President and US Treasury Secretary clash at G7 meeting! Lagarde questions Yellen's optimism about the impact of the Iran war

According to media reports citing insiders, European Central Bank President Christine Lagarde questioned US Treasury Secretary Scott Besent’s optimistic assessment that the economic impact of the Iran war would be short-lived during a meeting of senior officials from the G7.

Sources say Besent downplayed the shock from the ongoing conflict in the Middle East, which has lasted several weeks, and argued that disruptions, including the “de facto closure” of the Strait of Hormuz, would only be temporary.

However, Lagarde disagreed. At Monday’s G7 video conference, she told Besent and the attending central bank heads, finance ministers, and energy ministers that, as a large amount of infrastructure had already been destroyed, the effects of the shock would last a considerable period of time.

Media outlets reported that this exchange reflects escalating tensions between the US and Europe—Europe is more vulnerable to surges in energy prices and disruptions to shipping, impacts stemming from a conflict it did not initiate.

The economic pain is already evident: data released Tuesday showed eurozone inflation in March posted its biggest increase since the outbreak of the Russia-Ukraine conflict in 2022. Meanwhile, eurozone governments are lowering their economic outlooks, hoping the anticipated year of recovery will not turn into recession.

Recently, Besent attempted to reassure the American public about concerns over the conflict, claiming that oil market supply remains abundant and that the strait between Iran and other Gulf nations is expected to gradually reopen to shipping.

On the other hand, Lagarde continues to issue warnings. The ECB’s severe scenario forecast—based on major disruptions to energy supply lasting until the end of 2026 and further large-scale infrastructure damage—shows inflation could peak at 6.3%.

Lagarde said in an interview: “We are facing a real shock—its extent may exceed our current imagination. Too many facilities related to oil extraction, refining and distribution have been destroyed; it’s impossible to restore them within a few months.”

This clash with Besent was not Lagarde’s first friction with US officials this year. In January, at the World Economic Forum, Lagarde walked out during US Commerce Secretary Howard Lutnick’s speech because she believed his anti-European views were “too aggressive”.

Monday’s G7 meeting was part of global efforts to ease the situation; some countries have already decided to release emergency oil reserves. The G7 nations said they are prepared to take all necessary steps to maintain stability and security in the energy market. They also stressed the importance of coordinated international action to mitigate spillover effects and safeguard macroeconomic stability.

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