Diplomacy in ruins as G7 meets on Iran
Flags of Canada, France, Germany, Italy, Japan, the United Kingdom, the United States and the European Union ahead of the Group of Seven (G-7) Leaders Summit in Banff, Alberta, Canada on Saturday, June 14, 2025.
Bloomberg | Bloomberg | Getty Images
The war in Iran will present G7 countries with one of the most important diplomatic tests in modern history.
The group, which includes the United States, Canada, France, Germany, Italy, Japan and the United Kingdom, has remained under pressure during both of US President Donald Trump’s terms in office.
However, Washington and Tel Aviv’s decision to attack Iran on February 28, triggering a widespread wave of attacks on international military bases in the Middle East and the region, will test the alliance under extreme conditions.
After Israel and the United States attack a police station in Tehran, Iran, amid the US-Israeli conflict with Iran, March 2, 2026.
Majid Asgaripour | via Reuters
France, which currently holds the G7 presidency, called for an emergency meeting to address the Middle East. Finance Minister Roland Lescure said that he and his counterparts, as well as G7 central bank governors, will meet in the coming days.
Speaking to Franceinfo radio, he said: “I have spoken to various counterparts, in particular [U.S. Treasury Secretary] Scott Bessent to discuss the status of the situation and evaluate any responses that may be needed.”
Diplomacy is in tatters
The dispute between the United States and Spain will be a particular source of tension. Madrid’s refusal to allow the US military access to its bases prompted Trump to threaten to “cut off all trade with Spain”, while Bessent told CNBC that “the Spanish are putting American lives at risk”.
European leaders have rallied around Spanish Prime Minister Pedro Sanchez in an effort to protect Europe’s sovereignty. However, each G7 country is charting its own path in this international dispute.
France First
As an election year approaches, France is walking a particularly risky path.
President Emmanuel Macron has called the US-Israeli-led strikes “outside the framework of international law” while also vowing to strengthen its nuclear arsenal to protect Europe by sending an aircraft carrier to the Mediterranean for deterrence.
However, the possibility of how high energy prices may affect domestic inflation at a time when the economy is sensitive also affects Macron’s reaction. Finance Minister Roland Lescure, who will lead the G7 meeting, said: “It is very important that we coordinate in a conflict that has global repercussions.”
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Germany’s dominance over Europe
Germany has taken a more diplomatic tack, with Chancellor Friedrich Merz saying “now is not the time to lecture our partners and allies” ahead of his meeting with President Trump in Washington DC last week.
But the economic reality of a protracted war in the Middle East is already worrying Bundesbank President Joachim Nagel, who is expected to attend G7 talks this week. “This war is a burden on Germany, Europe and the entire world economy,” he told CNBC’s Annette Weisbach.
Starmer’s special relationship
In the UK, Prime Minister Keir Starmer was criticized for his cautious reaction to the attack on Iran.
Speaking last week, he said Britain’s so-called ‘special relationship’ was currently in operation but its decision not to participate in any attack on Tehran remained valid.
Trump sent a message to Starmer. harsh message throughout the weekend.
“The United Kingdom, our once Great Ally and perhaps our greatest, is seriously considering eventually sending two aircraft carriers to the Middle East. That’s okay, Prime Minister Starmer, we don’t need them anymore,” Trump said in a post on Truth Social.
Trump said, “But we will remember. We don’t need people joining Wars after we’ve already won them!” he added.
British Chancellor of the Exchequer Rachel Reeves, who is expected to attend the G7 meeting in the coming days, defended the Spring Statement as “the right economic plan in a world that is becoming more uncertain” despite rising energy costs.
Market Outlook
With such a complex diplomatic picture, markets survived a volatile period by focusing on the energy sector. As investors brace for more headlines in the coming trading sessions, here are some key takeaways for what to expect for markets:
Goldman Sach: “Energy supply disruptions have led to an unfavorable combination of high energy prices and weak risk sentiment; the sharp rise in European natural gas prices has focused particularly on European currencies. Higher gas prices will add to rising inflationary pressures in the European and Asian economies in the short term; impacts on the US will likely remain limited given dependence on domestic supply.”
Barclays: “Despite the rise in tensions, most non-US equity indices remain near their highs, leaving markets open to further deterioration. If Brent crude oil moves towards $100 per barrel due to supply concerns, Stoxx 600 “It could drop roughly 8% to around 550.”
Deutsche Bank: “The Iran situation is currently the focus of markets, but at least so far we are not at thresholds that are historically consistent with a recession or a larger market downturn.”
