The global economy reached an unexpected breaking point in the first quarter of 2026. The war that erupted between the US and Iran, quickly escalating into a regional energy crisis, fundamentally altered not only geopolitical balances but also monetary policy expectations. Just weeks ago, markets were expecting interest rate cuts from central banks, but today, the possibility of interest rate hikes is being seriously priced in. At the heart of this dramatic shift lies the energy shock and the resulting wave of inflation.

The economic impact of the war was felt most quickly and severely in the energy markets. The de facto closure of the Strait of Hormuz, through which approximately one-fifth of global oil supply passes, and attacks on energy infrastructure in the Middle East severely reduced supply. As a result of these developments, oil prices increased by over 50% in just one month, exceeding $100. This increase was not limited to oil; sharp rises were also observed in gasoline and diesel prices. Fuel prices exceeding $5 per gallon in some US states directly impacted consumer inflation.

This surge in energy prices led to a rapid upward revision of inflation expectations. As is well known in economic literature, any sustained increase in oil prices affects the entire cost chain, from production to transportation, pushing the overall price level upward. Indeed, economists predict that if oil prices remain at the $100 level, US inflation could rise significantly, and global price pressures would increase. This situation is changing the direction of financial markets by disrupting not only current inflation but also future expectations.

At this point, a critical shift occurred on the monetary policy front. While the US Federal Reserve (Fed) kept interest rates unchanged at its last meeting, it revised inflation expectations upward. Markets clearly understood this message: as long as the risk of inflation persists, interest rate cuts may be postponed, and even tightening may be considered again if necessary. Investors quickly withdrew the aggressive interest rate cut scenarios they had priced in a few weeks ago, shifting towards a "higher interest rates – longer duration" paradigm.

These developments brought a crucial concept for the global economy back to the forefront: stagflation. In other words, there is a risk of both high inflation and low growth simultaneously. Rising energy costs reduce household disposable income while increasing corporate costs, slowing economic activity. According to international organizations, a 10% increase in energy prices drags down global growth while pushing inflation up, deepening this dual pressure. This situation severely restricts the maneuvering space of central banks; because cutting interest rates to support economic growth carries the risk of further fueling inflation.

On the other hand, the effects of the war may go beyond a short-term shock. Analysts state that due to the damage to energy infrastructure and the permanent geopolitical risk premium, oil prices may remain at high levels even after the war ends. This could mark the beginning of a new "high energy cost regime" in the global economy. Even the US administration's step to ease some sanctions on Iranian oil may be limited in closing the supply gap in the market.

In conclusion, the war with Iran is not only a geopolitical crisis; it is also a turning point that reshapes global macroeconomic balances. The sharp rise in energy prices has pushed inflation expectations higher, effectively ending the interest rate reduction cycle and dragging central banks back into discussions of tightening. The key factors determining market direction in the coming period will be the duration of the war and the persistence of the disruption in energy supply. However, in light of current data, it is clear that the global economy now faces the risks of higher inflation, higher interest rates, and lower growth.
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