The intensifying conflict between the US, Israel, and Iran is sending shockwaves through global oil markets. Prices have climbed sharply as traders price in the risk of supply disruptions from the Strait of Hormuz, a critical chokepoint for crude shipments. The turmoil comes as Turkey’s central bank raised its inflation forecast, citing higher energy costs that are feeding into broader price pressures.
Oil markets under pressure
Brent crude futures jumped more than 3% this week as military strikes and retaliatory threats escalated between the US-backed Israeli forces and Iran. The Strait of Hormuz, through which about a fifth of the world’s oil passes, is now a flashpoint. Iran has previously threatened to block the waterway if attacked, a move that would send prices skyrocketing. For now, markets are bracing for prolonged volatility. The US has deployed additional naval assets to the region, but analysts expect the risk premium to remain elevated as long as fighting continues.
Turkey’s new inflation outlook
Turkey’s central bank on Thursday lifted its year-end inflation forecast to 38% from 33%, acknowledging that the conflict is making it harder to control prices. The bank’s governor said energy import costs are the main driver, with oil above $90 a barrel straining the country’s current account. Turkey imports nearly all its oil, so any sustained rise in crude prices feeds directly into domestic fuel and electricity bills. The bank warned that further hikes could be necessary if the conflict widens.
Global monetary policy complications
Central banks around the world are now facing a tougher fight against inflation. The US Federal Reserve, the European Central Bank, and others had been hoping to start easing policy later this year, but the oil shock is keeping price pressures alive. Higher energy costs ripple through transport, manufacturing, and agriculture, making it harder to bring headline inflation back to target. In emerging markets, the problem is more acute: weaker currencies amplify the impact of dollar-denominated oil, forcing central banks to keep interest rates high. The Bank of Japan, the Bank of England, and the Reserve Bank of India all face similar headwinds.
The next few weeks will be critical. Oil markets will watch for any sign of a ceasefire or a further escalation in the Strait of Hormuz. Turkey’s central bank is set to release its next policy decision in June, and investors expect another rate hike if oil prices don’t ease. For central banks globally, the question is how long they can hold rates steady before the energy shock pushes them to act again.
