Eurozone Consumer Confidence Crashes to Lowest Level in Two and a Half Years as Middle East Conflict Bites

The first survey data collected since the United States and Israel launched military operations against Iran on 28 February has confirmed what many Europeans already suspected: the conflict is eroding household confidence at a speed not seen since the early months of Russia's full-scale invasion of Ukraine.

Figures published on Monday by the European Commission's Directorate-General for Economic and Financial Affairs show that the consumer confidence indicator in the eurozone plunged 4.0 percentage points in March compared with February. Across the wider European Union, the fall was 3.4 points. Both readings now sit well below their long-term averages, at -16.3 for the euro area and -15.2 for the EU — the lowest levels recorded in two and a half years.

What is driving the decline?

The timing leaves little room for ambiguity. The survey period coincided with the escalation of the Middle East conflict, which has sent crude oil prices above $120 per barrel and disrupted global energy supply chains. For European consumers already bruised by years of inflation, the prospect of another energy-driven price surge has hit sentiment hard.

The eurozone's exposure is structural. Unlike the United States, which is a net energy exporter, the EU imports roughly 60 percent of its energy needs. Every sustained rise in oil and gas prices feeds directly into transport costs, electricity bills, and ultimately the price of groceries on supermarket shelves.

Portugal feels the pressure

For Portugal, the picture carries particular weight. The government has already signalled structural measures if the conflict continues to push up energy costs, and last week moved to release strategic oil reserves as fuel prices spiralled. The ISP fuel tax discount introduced by the government has done little to absorb the blow, with diesel and petrol prices continuing to climb despite the relief measure.

The consumer confidence data adds macroeconomic context to what Portuguese households are experiencing at the pump and the checkout counter. If sentiment continues to deteriorate, it could translate into reduced consumer spending — a worrying prospect for an economy where private consumption accounts for roughly two thirds of GDP.

A familiar pattern, but with different risks

The speed of the decline echoes the shock that followed Russia's invasion of Ukraine in early 2022, when consumer confidence in the eurozone fell to similar depths. But there are important differences this time around. European gas reserves are relatively healthy — Portugal's own reserves sit at 82 percent capacity — and the ECB has more room to manoeuvre on interest rates than it did during the post-pandemic tightening cycle.

But the oil market presents a different challenge. The Middle East conflict directly threatens production and transit routes that have no easy substitutes, and the uncertainty premium built into crude prices shows no sign of easing.

What to watch next

The full Economic Sentiment Indicator for March, covering businesses as well as consumers, will be published later this week. If industrial and services confidence follows the consumer trend downward, it will strengthen the case for the ECB to accelerate rate cuts at its April meeting — a move that would directly affect mortgage holders and borrowers across Portugal.

For anyone managing a household budget in Portugal, the message from Brussels is sobering but not surprising: the war in the Middle East is not just a geopolitical abstraction. It is already reshaping the cost of living across Europe, and the data now confirms it.