BRUSSELS / LONDON / NEW YORK

US and Israeli operations in Iran and subsequent retaliations pushed oil and gas prices higher, while pressure in energy markets drove inflation concerns to new highs in the West.

The disruption of oil flow in the Strait of Hormuz, combined with Iran's retaliatory moves in response to the US and Israel's attacks on Iran on February 28, put energy markets under pressure.

Ship traffic in the strait dropped to almost zero from 138 ships a day since the start of the conflicts in the Middle East, according to the World Trade Organization (WTO).

The paralysis of this route, through which approximately 20% of the daily oil demand in the world passes, triggered fears about the global supply chain.

Iran finally targeted a liquefied natural gas (LNG) export facility in Qatar after Israel attacked Iran's South Pars Gas Field, causing already high oil prices to rise even further.

Analysts pointed out that developments in the Middle East could affect inflation through three major channels, with an increase in energy prices having a direct impact on the consumer price index.

They said companies reflecting their rising costs in final product prices would raise core inflation as a second factor and that a prolonged period of uncertainty could increase the permanence of price increases by influencing inflation expectations and wage demand.

- Prices continue to rise despite measures

Measures such as the International Energy Agency (IEA) member countries' agreement to release the largest amount of strategic oil reserves in history, 400 million barrels, the US providing a temporary exemption to sanctions on Russian oil stranded at sea, and suspending maritime law also failed to keep oil prices from rising.

The barrel price of Brent oil, which hovered in the $70 to $80 range before the conflict, saw levels above $115.

Fitch Ratings Chief Economist Brian Coulton noted that inflation could rise sharply if the price increase and supply constraint in oil continued for a long time.

Coulton pointed out that global gross domestic product could be half a point lower at the end of four quarters if oil prices remained at the $100 level for a year, saying that this means a $500 billion shock to the global economy.

The crisis in the region, which is the center of world fertilizer and LNG traffic as well as oil, led to sudden increases of between 25% and 35% in urea and nitrogen-based fertilizer prices.

- WTO states conflicts could fuel inflationary pressures

The Global Trade Outlook and Statistics report updated by the WTO this week also included evaluations regarding the possible effects of conflicts in the Middle East on inflation.

According to the report, central banks could pause interest rate cuts to prevent a deterioration in inflation expectations, or even raise interest rates, and inflation pressures would increase if oil and natural gas prices rose significantly and permanently this year.

Pointing out that the Middle East served as a key transit corridor between Europe, Asia, and Africa and hosted critical maritime routes, especially the Strait of Hormuz, the report said disruptions in the strait have already triggered a sudden rise in energy prices and increases in transportation and insurance costs, and this situation could contribute to broader inflationary pressures.

- Every 10% increase in oil prices could raise global inflation by 40 basis points

International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned against inflation risks arising from the conflict in the Middle East earlier this month, stating that a 10% increase in oil prices could lead to a 40 basis point rise in global inflation if it lasted for most of the year.

IMF spokesperson Julie Kozack also said at a press conference this week that long-term high energy prices would raise headline inflation.

According to Kozack, the IMF and central banks will closely monitor this to see if it has "second-round effects" on broader inflation as well as effects on inflation expectations.

Fertilizer shipments are also disrupted, Kozack pointed out, warning that this situation increased the risk of food price increases as well as transportation disruptions.

- Fuel prices in US increase by over 30%

Rising oil prices have a direct impact on US consumers, as the average price of gasoline, which was around $2.9 per gallon a month ago, has risen by more than 30% to around $3.9, according to American Automobile Association (AAA) data.

Diesel prices rose above $5 per gallon, representing a 40% increase over the same period.

This increase in fuel prices, which is an important input item in sectors such as transportation and agriculture, sparked inflation fears because it has the potential to increase transportation costs and drive up logistics costs for food and other basic consumption products.

Concerns increased that inflation, which the Fed tried to pull to its 2% target for a long time, could again come under upward pressure with this increase in the energy item.

- Fed raises inflation forecast

Fed Chair Jerome Powell emphasized that the effects of developments in the Middle East on the US economy are "uncertain" during a press conference he held after the monetary policy decision this week, saying the energy shock pulled inflation expectations up.

Powell warned that the rise in oil prices made the fight against inflation more difficult, saying: "In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy."

The Fed raised its inflation forecast from 2.4% to 2.7% for the end of this year and from 2.1% to 2.2% for 2027.

- Natural gas prices in Europe rise sharply

The region remained vulnerable to supply problems as the European economy still largely depended on energy imports despite its significant steps towards diversifying energy supply in recent years.

Military tensions are intensifying around Iran, increasing risks to oil and natural gas supply and creating direct price pressure in European markets.

The price of gas in April futures contracts closed at the level of €32 ($34.8) per megawatt-hour on Feb. 27 before the war at the Netherlands-based virtual natural gas trading point TTF, which has the most depth in Europe.

Prices experienced sharp ups and downs as the war approached the end of its third week.

Gas prices opened at €72 per megawatt-hour on March 19, while prices closed at €61.

Gas prices in Europe are rising by over 90% at the close on March 19 compared to their last pre-war level, which drew attention.

Expectations that this increase in energy costs, which reflected on fuel, electricity, and heating prices in the first stage and led to a broad wave of price increases through production and logistics costs in the subsequent process, would start to push the European economy's inflation outlook upwards again.

- Price stability risks increase in Eurozone

The rise in energy prices created downward effects on growth while increasing risks to price stability in the Eurozone.

The European Central Bank (ECB) also kept its three key policy interest rates unchanged in its monetary policy decision the other day due to upward pressures on inflation.

ECB President Christine Lagarde reported that the war in the Middle East disrupted commodity markets and put pressure on real incomes and confidence, adding that this situation led to a downward revision of consumption and investment forecasts in the 2026 projections.

The Bank of England (BoE) Monetary Policy Committee (MPC) also kept the policy rate unchanged at 3.75% unanimously due to concerns about inflation.