Iran has reportedly assessed possible strikes on U.S. military targets in Europe if President Donald Trump escalates the conflict, according to people close to the regime cited by the Financial Times. Potential locations discussed include U.S.-linked military assets in Bulgaria and Cyprus.
The reports arrive after European equity funds attracted $13.52 billion in the week through Aug. 12, the strongest weekly inflow since early July. That accounted for roughly 73% of the $18.62 billion that moved into global equity funds over the same period, according to LSEG Lipper data reported by Reuters.
European Stocks Attract Billions as Investors Rotate From Tech
The shift into European assets has strengthened as investors look beyond expensive U.S. technology stocks.
Technology funds recorded about $1.7 billion in outflows during the week through Aug. 12, while Europe absorbed most of the money entering global equities. Stronger corporate earnings have also helped support the rotation, with analysts now expecting STOXX 600 companies to deliver roughly 24% earnings growth for the current reporting season.
We previously tracked the strength of the region, including the STOXX 600 rally led by European defense and banking stocks.
That bullish backdrop is now being tested by renewed Middle East risk. The STOXX 600 has already moved away from recent highs, closing near a three-week low on Wednesday as higher energy prices and inflation concerns weighed on sentiment.
Iran Threat Adds New Risk for Europe
The latest reports suggest Tehran has examined options that would broaden the conflict beyond the Middle East if Washington intensifies military action.
Bulgaria has allowed U.S. refueling aircraft to use the Bezmer air base, making southeastern Europe strategically relevant. Cyprus was also identified by one person familiar with Iranian discussions, while Tehran has separately considered targeting subsea communications infrastructure around the Strait of Hormuz.
Any escalation involving Europe could have consequences beyond defense stocks. Higher oil and gas prices would increase inflation pressure, weigh on airlines and consumer companies and complicate the outlook for European interest rates.
The risk is not yet being treated as an imminent attack. Military analysts cited by the FT said Iran’s ability to strike European targets exists but is constrained by missile range, available weapons and operational capacity.
Still, investors are already sensitive to Middle East headlines. European shares edged lower again Thursday as Brent crude moved near $93 per barrel, with energy stocks outperforming while travel shares weakened.
For European markets, the key question is whether strong earnings and fund inflows can continue outweighing geopolitical and energy risks.
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