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[INTRO: AMINE LAOUEDJ, MANAGING DIRECTOR]
Welcome! Once a week from London, we break down the global economic event that mattered most, and we analyze what it means for business.
[LAST WEEK'S KEY ECONOMIC EVENT]
Last week, the finance ministers and central bank governors of the G7 met in Paris, France, to discuss the response to the Iran War.
The G7 is an informal grouping of the seven largest advanced economies: the United States, Japan, Germany, the United Kingdom, France, Italy and Canada. The European Union is also represented at the table. They were joined by the heads of major global organizations including the International Monetary Fund, the World Bank, the OECD, the International Energy Agency, and the Asian and African Development Banks. They were also joined by the finance ministers of Brazil, India, Kenya and South Korea.
As a reminder, the Iran war started at the end of February when Israel and the United States struck Iranian targets. Iran retaliated by restricting traffic through the Strait of Hormuz, the maritime passage that carries a fifth of the world's oil. Traffic now runs at 5% of pre-war levels, and Brent crude peaked above $115 a barrel last week.
The objective of the Paris meeting was to answer the one question every business leader is also asking: how far should governments go to cushion their economies from this war?
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For context, in normal times, the default rule governments operate under is: spend carefully, do not blow up the deficit.
That rule has been broken twice in the last five years. During Covid in 2020, governments spent whatever was needed to keep their economies alive. During the Ukraine war and the European energy crisis that followed in 2022, they broke it again, rolling out price caps and subsidies that ran into the hundreds of billions of euros.
The Iran war is a shock of the same order of magnitude. Everyone expected the rule to be broken a third time.
This is where the Paris meeting matters. When the meeting ended on Tuesday, the joint statement indicated that any policy response to the energy shock should be "temporary, targeted and fiscally responsible."
What does that actually mean in practice?
Temporary means support cannot become permanent: no new subsidies that quietly stay on the books for years, no benefit increases that become baselines, and no support schemes without a clear end date.
Targeted means support cannot be broad: it must go only to the most affected households and sectors, not to the whole economy through general measures like an across-the-board energy price cap or a universal handout.
Fiscally responsible means support cannot widen the deficit beyond what each country can sustain: it must be funded or offset, not simply added to the borrowing pile.
In other words, even though the Iran war is comparable in scale to the previous two shocks, the G7 has confirmed in writing that this time, the rule stays. Any support governments do provide will be smaller, narrower and shorter than what was deployed in 2020 or 2022.
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So, why not spend more this time?
Because the lesson of 2022 is that big government spending during a supply shock makes inflation worse, not better. When prices rise because energy is scarce, giving households and businesses more money to spend does not solve the scarcity. It just lets buyers bid the same scarce energy up to higher prices. The European energy subsidies of 2022 are now widely seen as one of the reasons inflation stayed high for so long, which forced central banks to keep interest rates high, which is what is still squeezing economies today.
So spending big to cushion the Iran war would not work. It would feed more inflation, force central banks to hold interest rates higher for longer, and cause more economic damage than the war itself.
This lesson matters even more for governments that have already borrowed heavily in recent years and have very little capacity left to borrow more, which is the case for France, the United Kingdom and Italy.
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Other question: Why does the answer have to be collective? Why not let each country decide for itself?
Because if one country breaks ranks, the discipline collapses for everyone else.
Suppose France launched a large energy support programme on its own. Three things would follow.
First, German, Italian and British voters would see French households receiving help while they receive nothing. The pressure on their own governments to match France would become politically very hard to resist, even for governments that know it is a bad idea.
Second, the extra French spending would push up demand for energy and other goods across Europe, because the European economies are tightly interconnected. That extra demand would lift prices in Germany, Italy and the UK as well, even if those countries spent nothing themselves. France would be exporting inflation to its neighbours.
Third, the European Central Bank, which sets interest rates for the whole eurozone, would have to raise interest rates further to fight that extra inflation. Higher rates would then hit every business and every household across the eurozone, including those that never benefited from the French spending in the first place.
So one country breaking ranks does not just create problems for itself. It exports inflation to its neighbours, forces them to match its spending under domestic political pressure, and triggers higher interest rates that hurt everyone. The only way to prevent that is for every government to commit publicly and together, so that any defector is visibly breaking a shared promise, not simply making a domestic decision.
[WHAT IT MEANS FOR BUSINESS]
So, what does this mean for business?
The overall impact is negative. The shock itself has not changed, but the cushion that business leaders may have been quietly hoping for has now been publicly confirmed as not coming.
In the past two shocks, that cushion was real and it was global. Government spending in the United States lifted demand across the world's largest consumer market, which exporters everywhere benefited from. European energy subsidies kept industrial users in business through the worst of the 2022 price spike. Both reached far beyond the borders of the countries that paid for them.
This time, neither is coming at the same scale. Businesses everywhere will have to absorb the rising costs, the weaker demand and the squeeze on margins caused by the war on their own, without expecting their own governments to step in and without expecting foreign government spending to lift global demand on their behalf.
The impact will not be even.
Europe will feel it hardest, because European economies import the most energy and their governments have the least room to act.
The United States and Canada will feel it least, because both produce more energy than they consume, so the rise in global oil prices hurts them less.
The rest of the world sits somewhere in between, exposed to the war through higher energy prices and weaker global demand, but without the support programmes that softened the previous two shocks.
[WHAT SHOULD BUSINESS LEADERS DO NOW]
So, what to do now?
Business leaders fall into two camps, and the advice is different for each.
The first camp is those who were quietly hoping their government would step in to help them through the war. If that is you, your planning needs to change this week.
Go back to your cash flow models and take out any assumption that subsidies or price caps are coming. They are not.
If you paused your hedging programme because you thought the government would absorb the energy cost for you, restart it now.
Look at your customer contracts. If you have clauses that let you pass higher costs on to your customers, check whether they actually hold up, because you will need them.
The second camp is those who were already planning to absorb the shock themselves. If that is you, the Paris statement is quietly good news. Your competitors who were waiting for a bailout are now caught out. You have a head start, so use it. Lock in your supplier contracts now. Refinance your debt while you still can. Put your energy hedges in place. The window is still open, but it is closing as the war drags on.
And one last thing. If you have been listening to these episodes for weeks and have not yet moved on your inventory, your hedging, your pricing or where you do business, the Paris statement is the last excuse gone. The government is not coming to save you.
[OUTRO: AMINE LAOUEDJ, MANAGING DIRECTOR]
Thank you for listening to this episode of What It Means for Business. Have a good week.
Last week, G7 finance ministers and central bank governors convened in Paris to coordinate a response to the severe economic shock triggered by the Iran War and the disruption of the Strait of Hormuz.
The resulting joint statement sent a definitive signal to the global market: there will be no return to the massive subsidy programs seen during the 2020 pandemic or the 2022 European energy crisis. Because governments are prioritizing fiscal responsibility to prevent another surge in inflation, businesses will have to absorb the brunt of rising costs on their own. This shift leaves no room for hesitation, meaning business leaders must rapidly adjust their pricing models and secure supply contracts without relying on state intervention.
Every week on the What It Means for Business podcast, Glenshore's Amine Laouedj cuts through the noise of global economic headlines to explain what is happening, why it matters, and what business leaders should do to adapt.
Available on Spotify and Apple.
Date of production: 26 May 2026
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