Iran War Pushes Oil Prices Higher, Inflation Fears Across EM

The US-Israeli military campaign against Iran has created a persistent supply shock in crude oil markets, with satellite imagery confirming that Iran's Kharg Island oil jetties are regularly empty, curbing exports from one of the world's largest producers. Saudi Arabia, too, reported to OPEC that its crude production collapsed to the lowest level since 1990, a stunning decline driven by the conflict's spillover effects and the broader instability in the Persian Gulf. These supply dynamics have supported oil prices at elevated levels despite weak demand signals from some regions, creating a stagflationary backdrop that is rippling through global macro.

Central banks in trade-dependent, energy-importing nations are responding with caution and concern. Turkey's central bank has raised its inflationThe rate at which prices rise across an economy. forecasts explicitly citing the Iran war, forcing policymakers to reconsider the pace of rate cuts even as domestic growth softens. The Czech National Bank has similarly pivoted to a more cautious stance. Bangladesh's rating agency Fitch downgraded its outlook to negative, citing high vulnerability to Middle East disruptions. Pakistan's economy accelerated in recent quarters but faces renewed headwinds from soaring energy costs, with global crude prices elevated due to conflict-driven supply constraints. India is also contemplating scaling back Russian oil imports if US sanctions waivers expire, further tightening global crude balances.

For commodity exporters, the conflict has created a bifurcated market: producers of oil and metals benefit from higher prices, while importers face margin pressure and inflationThe rate at which prices rise across an economy.. North Sea oil, typically a global pricing benchmark, traded at a discount for the first time during the Iran war as immediate fears eased temporarily, but the long-term supply picture remains tight. Mining companies, sensing investment opportunity, are stepping up. Agnico Eagle announced a $10.2 billion investment in Ontario gold assets, and Equinox Gold agreed to acquire Orla Mining for $5.1 billion, both bets on long-term precious-metals demand amid macro uncertainty. Senegal is accelerating development of the Yakaar-Teranga gas field, a $7.5 billion project designed to reduce energy subsidies and boost energy security.

The geopolitical premium in energy markets is unlikely to disappear quickly. Trump's repeated military threats against Iran, even as he prepares for the Xi summit, suggest the conflict could escalate further. This creates a dilemma for growth-oriented equities: while earnings remain robust in many sectors, the persistent inflationThe rate at which prices rise across an economy. tail-risk and central-bank caution could cap equity multiples. Investors are increasingly demanding resilience premiums in Middle East and EM assets, with those perceived as geopolitically buffered trading at relative premiums. The durationBond price sensitivity to interest rate changes. of the conflict and degree of further escalation will be the key variables shaping global inflation and monetary policy for the remainder of 2026.