Iran war drives inflation pressure, CBT chief warns

The ongoing Iran war and rising energy prices are increasing inflationary pressure in Türkiye, according to Central Bank Governor Fatih Karahan, who said the conflict is already affecting both costs and broader economic expectations. Speaking on the impact of Middle East tensions, Karahan highlighted that oil price volatility is directly feeding into inflation while also triggering secondary effects across multiple sectors.

Energy prices and inflation link

Karahan emphasized that higher oil and natural gas prices are a key driver of cost-push inflation. “The ongoing war has led to a pronounced increase in energy prices,” he said, adding that the impact is not limited to fuel but spreads through production and supply chains. According to Central Bank calculations, a sustained 10% rise in oil prices could add around 1.1 percentage points to annual inflation, although policy tools such as the sliding-scale system help soften this effect.

Medium-term risks and economic outlook

Looking ahead, the Central Bank expects both supply-side disruptions and demand-side shifts to shape inflation dynamics. Supply constraints linked to the conflict have already begun to affect pricing, while uncertainty may weaken external demand and investment appetite. Karahan noted that higher energy costs could slow economic growth, estimating a potential reduction of up to 0.7 percentage points over a year under certain scenarios.

Current account and trade balance impact

The war also poses risks to Türkiye’s current account balance, primarily through rising energy imports. A $10 increase in oil prices could widen the energy deficit by several billion dollars annually. However, a moderation in domestic demand and imports may partially offset this effect, supporting the trade balance. Officials say the current account deficit remains below historical averages and manageable despite external pressures.

Policy response and financial stability

Karahan underlined that the Central Bank is maintaining a tight monetary stance to contain inflation expectations. Measures introduced since the escalation include liquidity management steps, foreign exchange operations, and support mechanisms to stabilize markets. “We are determined to ensure the tightness required for the continuation of the disinflation process,” he said.

Reserves and gold strategy

Addressing concerns over reserves, Karahan pointed to Türkiye’s increased gold holdings, which now account for more than 60% of total reserves. He confirmed that gold-backed transactions, including swaps, are being used to support foreign exchange liquidity. These tools, along with Turkish lira swap operations, are part of a broader strategy to maintain financial stability and strengthen confidence in the economy.