zeb.market.flash #55: War, oil, inflation – and the impact for banks
Our overview of current developments in the global banking market
And here is what this issue is all about:
Middle East escalation weighs on capital markets
After a good start to the year, the financial markets tipped into a new shock re gime of rising energy prices, inflationary pressure and greatly increased uncer tainty in Q1 2026 due to the escalation in the Middle East and the de facto clo sure of the vital global shipping route Strait of Hormuz (MSCI World market capitalization -2.2% QoQ).
For banks, the negative factors predominated in the new market environment: the global top 100 banks lost -4.2% QoQ in market capitalization, the first QoQ decline in eleven quarters.
High profitability comes with increasing risks
After a slight decline in inflation in Western Europe in Q4 2025 (-0.08 pp QoQ to 2.17%), upside risks are once again emerging for 2026. Higher energy prices and potentially rising food prices as a result of the war in Iran are reinforcing price pressure and exacerbating the ECB’s monetary policy conflict of objectives in an already weak growth environment.
The ROE of Western European banks rose year-over-year from 9.5% to 12.0% in Q4 2025, underlining their strong financial performance in 2025. However, Q1 2026 signals from the capital markets point to a normalization; under heightened geopolitical risks, the sustainability of the increased profitability is now being put to the test.
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