Frankfurt, Germany: The Middle East conflict is a threat to financial stability, a senior European Central Bank official said Thursday, warning that it could spark "systemic stress" in the markets.
The turmoil unleashed by the conflict has come at a time of growing worries about a bubble in tech stocks driven by euphoria over AI, as well as the health of the private credit sector.
"This conflict could trigger the unravelling of interconnected vulnerabilities and cause systemic stress," ECB Vice President Luis de Guindos said in a speech in the Estonian capital Tallinn.
"It threatens to derail market sentiment at a time when asset valuations are high," he said, adding it could also be "amplifying stress in the non-bank financial sector".
De Guindos, whose role at the ECB includes monitoring financial stability, added however that the "spillovers to the euro area financial sector have so far remained contained".
Markets have been roiled by the Mideast conflict, sparked last month by US attacks on Iran, with stocks falling and oil and gas prices jumping.
Iran has declared the Strait of Hormuz -- a vital sea lane that normally transports about a fifth of the world's oil and gas -- closed to the shipping of countries it considers allied with the United States and Israel.
Warning of "far-reaching repercussions for the global economy", de Guindos said the economy "was facing a supply shock".
"The scale of the impact and the implications for price and financial stability will depend on how much the war spreads, and how long it lasts," he added.
Speaking in Frankfurt on Wednesday, ECB President Christine Lagarde said there were reasons to think any inflationary shock would be less intense than in 2022 after Russia's full-scale invasion of Ukraine.
Traders have raised their bets on the ECB hiking interest rates as soon as next month to tame an expected surge in inflation.
