Iran War Pushes Oil Above $75; Turkey, ECB Signal Inflation Pivot as Energy Costs Surge

The escalating Iran-Israel war has emerged as a material macroeconomic shock with far-reaching cross-border consequences. Oil flows through the critical Strait of Hormuz fell by nearly 6 million barrels per day in the first quarter of 2026, a decline of roughly 30% that represents one of the most significant disruptions to global energy supply in years. This supply constraint has lifted crude prices, with Brent and WTI both trending above $75 per barrel, and has begun feeding through to inflationThe rate at which prices rise across an economy. expectations across economies most dependent on Persian Gulf energy imports. Central banks globally are now grappling with the dual pressure of higher inflation from energy costs and the political uncertainty stemming from the conflict.

Turkey's central bank has taken the most explicit action, revising its year-end inflationThe rate at which prices rise across an economy. target upward to 24% from prior guidanceCompany-issued forecasts of future financial performance., citing the direct effects of elevated energy prices on producer costs and consumer pricing. Turkey is particularly vulnerable given its heavy reliance on imported oil and its current inflation challenges. Similarly, the European Central Bank has signaled that any further deanchoring of inflation expectations from energy price pressures could force it toward rate hikes, even though eurozone growth remains fragile. ECB officials have begun openly discussing the scenario in which an energy shock forces monetary policy into a tighter stance, which would be contractionary for credit and equity valuations.

The energy shock has also impacted specific sectors and currencies. Energy importers face margin compression as input costs rise; airlines (such as Air New Zealand, which forecast a full-year loss) have publicly warned that jet fuel costs are eroding profitability. Currency markets have been volatile in Asian trading as foreign reserves are drawn down to defend currencies against the spike in oil prices. India has requested an extension of its Russian oil waiver, signaling acute energy supply concerns. Meanwhile, energy-exporting economies and energy companies stand to benefit from higher prices, though the broader uncertainty from the conflict may dampen investment in new projects.

The bear case for risk assets centers on the possibility that the conflict either escalates further or persists longer than currently anticipated, keeping energy prices elevated and forcing more central banks into tightening cycles. Some analysts argue that the inflationThe rate at which prices rise across an economy. shock is temporary and that central banks should look through it, but the risk of deanchored expectations is very real in economies with low credibility or high structural inflation. The upside case relies on a near-term deescalation or negotiated settlement that restores Hormuz flows and allows central banks to return to neutral or accommodative stances.