Erdal Saglam: Iran Crisis May Strike a New Blow to Turkey’s Fragile Economic Recovery

As Turkey’s economy shows signs of cautious stabilization, the eruption of the Israel-Iran conflict threatens to deal a fresh blow. Financial markets are already reacting to geopolitical tensions, and experts warn that prolonged instability could derail fragile progress on inflation, growth, and monetary policy.

A Chain Reaction Set Off by Regional War

According to economic columnist Erdal Sağlam, the economic fallout of Israel’s strike on Iranian military and nuclear sites—and the possibility of escalation—has direct consequences for Turkey. The biggest concern: oil prices and investor sentiment.

“This event has already begun disrupting global economic expectations,” Sağlam writes. “Even before the conflict ends, the shockwaves are being felt in countries like Turkey.”

Turkey, already battling inflation and tight financing conditions, is now vulnerable to further external shocks—especially if the U.S. is drawn deeper into the conflict.

Dual Pressure: Policy Paralysis and Rising Costs

The Central Bank of Turkey (CBRT) had been signaling a cautious pivot toward easing interest rates this summer. However, the Israel-Iran conflict has derailed those expectations.

Markets now assume that interest rates will remain high—and may even need to stay tight longer than previously thought. The central bank’s planned rate cut in June has already become “highly unlikely” after the recent escalation, according to Sağlam.

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Could the U.S. Push for a Quick Resolution?

From a global perspective, analysts believe the U.S. may try to contain the conflict quickly, fearing economic fallout. Washington is likely wary of surging oil prices ahead of the U.S. elections, which could derail its domestic economic agenda.

But such expectations depend on political choices. As Sağlam notes, if the conflict drags on, Turkey’s markets—already considered fragile—could suffer increased capital outflows and currency volatility.

Erdoğan’s Growth Vision at Risk

President Erdoğan recently declared that “2026 will be a year of comfort” for Turkey, setting growth targets and calling on industrialists to keep investment alive. However, a fresh energy price shock—on top of ongoing inflation—could force a policy shift.

The Turkish economy was already expected to slow to 2–3% growth, but that projection may now be optimistic. Consumption and private investment are expected to decelerate further, while financing costs remain high and global liquidity is tight.

The Oil Price Trap: A New Wave of Inflation?

Oil prices have already risen to around $75 per barrel. If the crisis deepens, experts fear prices could remain elevated throughout the year. This would push inflation back up, particularly through Turkey’s heavy dependence on energy imports.

In addition, the Turkish lira—already weakened—may come under renewed pressure. A combination of imported inflation, sticky price levels, and tight monetary policy may force the government into difficult policy trade-offs ahead of any early elections.

Markets Waiting for Political Clarity

The economy now faces a dangerous combination: geopolitical instability abroad and growing political uncertainty at home. Erdoğan’s government may soon be forced to choose between maintaining discipline or making populist concessions in response to public pressure.

The timing of key decisions, especially on interest rates and budget allocations, will be crucial. Sağlam concludes that the longer the Iran conflict drags on, the greater the risk that Turkey will lose the economic balance it began to restore in early 2024.

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