Let's talk about a week where the world outside Europe tried very hard to mess up the relatively calm picture inside Europe.

Oil prices decided to go for a jog on Monday, and by "jog" I mean a full-on sprint. U.S. crude (WTI) surged more than 8% to above $72 a barrel, hitting its highest level in nine months. The cause? U.S. and Israeli military strikes on Iran, which have significantly ratcheted up tensions in the Middle East. When major oil-producing nations start getting hit, the market tends to price in the risk that someone might accidentally (or on purpose) disrupt the flow of crude.

The reaction wasn't limited to crude. ICE gasoil futures jumped more than 20% in their biggest intraday gain since March 2022. Brent crude in London traded about 10% higher, near $80 a barrel. Adding fuel to the fire, literally, was a report from Bloomberg that Aramco had halted operations at Saudi Arabia's 550,000-barrel-per-day Ras Tanura refinery after a drone strike. The official Saudi Press Agency said there was a "limited" fire caused by debris and that defenses had intercepted two drones targeting the facility.

Why does this matter so much to Europe? About 20% of the world's daily oil consumption passes through the Strait of Hormuz, a narrow waterway that Saudi Arabia, Iraq, and the UAE use to send out most of their exports. Analysts at Barclays have predicted crude could hit $100 a barrel if supply gets disrupted. For Europe, a sharp oil spike is a triple threat: it accelerates inflation, weakens economic growth, and complicates life for the European Central Bank. A major disruption at Hormuz could also jeopardize about 10% of Europe's LNG imports, pushing up power costs and hitting industrial production.

The Geopolitical Spark

The military action killed Iran's Supreme Leader, Ali Khamenei, and at least 40 other military, security, and government officials. U.S. President Donald Trump said the campaign would continue "uninterrupted throughout the week or as long as necessary" and called for the Iranian people to rise against the regime.

European powers Germany, France, and the UK pressed the Trump administration to return to negotiations with Tehran, urging Iran to end its nuclear program and curb regional destabilization. The EU's foreign policy chief, Kaja Kallas, called Khamenei's death "a defining moment in Iran's history," suggesting an "open path to a different Iran." Meanwhile, EU Commission President Ursula von der Leyen warned his removal could push the region into a "spiral of violence."

The immediate economic fallout was clear. Shipping giant A.P. Møller–Mærsk A/S A.P. Møller–Mærsk A/S (AMKBY) said Sunday it had halted passage through the Suez Canal and the Strait of Hormuz for safety reasons. For a European economy that's already seen GDP ease over the last four quarters, a conflict that disrupts logistics and oil supplies is the last thing it needs. EU officials are pushing for military operations to end, fully aware of the potential economic impact.

Meanwhile, Back in Europe...

While geopolitics heated up, the domestic economic data told a cooler story. Eurozone core annual inflation eased to 2.2% in January, down from 2.3% in December and marking the lowest rate since October 2021. Growth has remained modest. This combination—cooling inflation with okay-but-not-great growth—is the kind of data that gives central bankers room to think about gradual interest rate cuts without immediately panicking about inflation roaring back.

Of course, the new Middle East conflict could throw a wrench into those inflation calculations very quickly.

Digging into individual countries, the picture was mixed. In Germany, retail sales fell by 0.9% year-over-year in January, missing expectations for a milder 0.2% drop. The pullback was largely driven by a 1.7% decline in non-food sales, suggesting households started the year on a cautious note.

In Italy, the full-year GDP reading showed growth of just 0.5%, down from 0.8% in 2024. It's a slowdown that adds to the economic challenges facing the bloc.

Policy Pushes and Pulls

European leaders weren't just watching the data and the headlines; they were busy with their own debates. Italy made a bold move, urging the suspension of the European Union's carbon pricing mechanism for polluting industries. Italy's Enterprises Minister, Adolfo Urso, called the Emissions Trading System (ETS) a tax on energy-intensive industries and argued it must be "substantially revised" to spur EU competition. He warned the policy could lead to the "collapse" of European industry and the relocation of emissions to other continents.

His argument taps into a real fear: Euro Area companies struggling to compete with U.S. and Asian rivals due to climate regulations and higher power prices.

Meanwhile, Germany took a step in a different direction. A new law aimed at accelerating hydrogen production passed parliament, which the energy industry group BDEW called a "decisive breakthrough" for the technology. The Hydrogen Acceleration Act slashes red tape on permitting for electrolyzers, pipelines, import terminals, and low-carbon hydrogen projects, fast-tracking infrastructure rollout. This is seen as a boon for energy-intensive German industries like BASF SE (BASFY) and Thyssenkrupp AG (TKAMY).

On the diplomatic front, German Chancellor Friedrich Merz visited Beijing to address trade and economic imbalances with the EU, following similar trips by other European leaders. And EU leaders continued to debate concepts like "two-speed" integration—where a core group of countries moves faster on key issues—to break deadlocks on competitiveness and security.

A Stock Story: AIXTRON's Contradiction

In a neat microcosm of the mixed signals, look at AIXTRON SE. The German semiconductor equipment maker reported Thursday that its revenue declined 12% to €557 million for the year. Yet, its stock climbed 19% for the week ending February 27.

How does that work? The company cited weaker demand in power electronics and LED segments but pointed to strong optoelectronics growth and operational efficiency measures that led to robust free cash flow. For 2026, AIXTRON anticipates revenue of around €520 million, with growth in optoelectronics expected to offset weakness in silicon carbide (SiC) and stable demand in LEDs.

This tells a story of a split European tech landscape. Weakness in areas like SiC power electronics reflects slowdowns in electric vehicles and overcapacity issues plaguing German auto supply chains. But strong, AI-driven demand in photonics highlights a pivot toward high-margin, specialized niches. The market, it seems, liked the cash flow and the niche strategy enough to overlook the top-line decline.

As the week wrapped up, EU Commission President von der Leyen called for a credible transition in Iran and will host a special Security College meeting to discuss developments. The EU's goal is clear: contain the situation, prevent further escalation, and protect regional stability. Whether the calls from Europe will be heeded by other global powers remains an open question, especially as European leaders noted they were not informed in advance of the U.S.–Israel strike on Iran.

So there you have it. A week where easing inflation and slowing growth at home met spiking oil prices and geopolitical turmoil abroad. It's the kind of contradictory environment that keeps central bankers, politicians, and investors up at night, trying to figure out which trend wins out.