Oil crisis stokes inflation risks for Mideast as Iran war exposes importers

A surge in global oil prices triggered by the war involving the United States, Israel and Iran is raising alarms about a fresh inflation shock that could ripple through the global economy while hitting vulnerable markets across the Middle East — headlined by Egypt and Turkey.

Crude briefly climbed near $120 per barrel on Monday morning before prices tumbled back to around $90 later in the day after US President Trump said the war was “very complete," but markets remain on edge amid the extreme volatility sparked by the fighting that erupted Feb. 28. Speaking Monday in Tokyo, International Monetary Fund Managing Director Kristalina Georgieva warned that the conflict could undermine the world’s still-fragile economic recovery while advising global policymakers to “think of the unthinkable and prepare for it.” A sustained 10% increase in oil prices, she said, would add roughly 40 basis points to global inflation while reducing global output by 0.1% to 0.2%.

The disruption is being driven largely by the collapse of shipping through the Strait of Hormuz, a vital chokepoint through which roughly 20% of global oil supply and liquefied natural gas trade normally flows. Although regional energy producers stand to benefit from higher prices, nearly all Gulf shipments remain blocked and surging costs are already poised to impact import-dependent nations around the Middle East. 

Details: As economic fallout from the war starts to come into focus, Egypt is among the most exposed. Over the weekend, the Egyptian pound fell to a record low of nearly 53 to the US dollar, and President Abdel Fattah el-Sisi warned last week that the country was facing an economic “state of near-emergency” due to the war, cautioning that the conflict could trigger renewed inflation.

Egypt had only recently begun to tame sky-high inflation, which slowed to 11.9% in January after peaking at 38% in 2023 following a massive international bailout program. A key vulnerability is the North African nation’s growing reliance on energy imports amid falling domestic natural gas production and surging power demand. 

Officials are also worried about disruptions to the Suez Canal, a critical source of foreign currency earnings. Shipping companies have once again begun diverting vessels from the route amid regional security concerns, raising the risk of lost transit revenues.

Turkey, another major regional economy that has struggled with years of high inflation, is also feeling the pressure. The Turkish Central Bank has intervened heavily in markets in recent days, selling about $12 billion in foreign currency — roughly 15% of its reserves — to stabilize the lira during the turmoil triggered by the conflict, Bloomberg reported on March 6. 

Turkey’s inflation remains elevated at around 31.5% annually, complicating policymakers’ efforts to continue a rate-cutting cycle that began in 2024. Finance Minister Mehmet Simsek has acknowledged that rising oil prices linked to the Iran conflict are adding fresh inflation risks.

In the Gulf, the economic picture is more complex. While high oil prices normally boost revenues for energy exporters, the current crisis is threatening near-term export volumes. Saudi Arabia and the United Arab Emirates can redirect some crude through pipelines to ports outside the Gulf, but many shipments remain stuck.

At the same time, Gulf states must also contend with new economic pressures in a region that imports up to 90% of its food and other key goods. As the World Bank has noted, domestic inflation among Gulf Cooperation Council countries is mainly driven by imported inflation from its main trading partners, which now face rising global oil and food prices and supply chain disruptions. 

In the short-term, however, food insecurity is a major risk factor. On March 6, market intelligence firm Kpler warned that grain shipments were being disrupted across the Gulf, with Iran the most exposed. Since the war began, local authorities in the Gulf have been seeking to reassure the public that food supplies remain stable. If shipping disruptions persist, those costs could rise even as governments may seek to shield local consumers.

More broadly, energy disruptions in the Gulf could also impact food security in the longer term, as natural gas is a key feedstock for fertilizer production used for agriculture, which could impact prices.

Why it matters: The shock is striking at a moment when global inflation had finally begun to ease after several years of turbulence. Before the conflict erupted, the IMF expected global inflation to fall to 3.7% in 2026, with economic growth stabilizing near 3.3%. For the Middle East specifically, the lender has projected growth to rise to 3.5% in 2026, up from 2.7% last year, supported by recovering investment and easing price pressures. 

As of late 2025, the IMF had forecasted that inflation in the wider Middle East and North Africa region would remain subdued or decline gradually this year. Among Gulf economies, inflation was expected to remain stable and moderate, averaging about 2%. Among regional oil importers, the Washington-based lender projected that inflation would remain low in Jordan and fall from elevated levels in Egypt, supported by the waning effects of past currency depreciation and energy price hikes. 

But the sudden jump in energy prices has complicated that outlook, and economists are already adjusting forecasts. Last week, JPMorgan cut its outlook for non-oil economic growth across Gulf economies by 0.3 percentage points, citing the conflict and rising regional uncertainty, with Bahrain and the UAE facing the largest revisions. 

This comes as some analysts are already warning that a prolonged conflict could create the conditions for stagflation more broadly — a mix of slower growth and higher inflation — and market turbulence already appears likely to delay rate cuts by central banks.