Morning Report: Geopolitical Fault Line Fractures; Risk Appetite Weak but No Panic Pricing Yet

The expansion of Israeli airstrikes on Tehran and the reported killing of Iran’s Supreme Leader have opened a new and highly volatile chapter in Middle Eastern geopolitics. While risk appetite has weakened and energy markets have reacted sharply, investors are not pricing in full-scale panic. Oil, logistics routes, and inflation expectations remain the key transmission channels to global markets, with Türkiye facing manageable but tangible economic spillovers.

A New Phase in the Middle East

Although diplomatic channels appeared active last week, it was increasingly clear that the United States would not withdraw after such a large-scale military buildup. The probability of conflict was high — arguably inevitable.

The widening of Israeli air operations and the announcement of Ayatollah Ali Khamenei’s death have dramatically shifted regional dynamics. Israel has signaled that operations will continue, while Iran has moved to an interim leadership council.

A critical dimension of the crisis is that the strike reportedly proceeded without formal approval from the U.S. Congress or broader international consensus. Should the conflict drag on and deplete U.S. munitions, rival powers may interpret the situation as a strategic opportunity.

Atilla Yesilada market view: Run, hide, take cover

Energy and Logistics: The Economic Front Line

From an economic standpoint, the immediate stress point is energy and logistics.

Roughly one-fifth of global oil flows transit through the Strait of Hormuz. The anchoring of oil and LNG tankers in surrounding waters signals significant perceived risk to supply continuity.

Brent crude, which closed last week at $72.87 per barrel, surged more than 10% in early trading to $82.37 before stabilizing near $77. While there has been no formal announcement of a full closure of Hormuz, heightened military presence and security warnings are generating uncertainty in freight rates, insurance premiums and delivery timelines.

OPEC+ announced only a modest output increase of 206,000 barrels per day for April — a cautious move suggesting a wait-and-see stance rather than an aggressive supply response.

Although higher oil prices are theoretically supportive for net energy exporters, they present political challenges for the U.S., particularly ahead of November midterm elections. Rising gasoline prices could create domestic political pressure. As such, a prolonged operation that pushes oil sustainably above $100 per barrel is not our base case.

Public Opinion and Escalation Risks

According to a Reuters/Ipsos poll, only about a quarter of Americans support U.S. strikes on Iran, while 43% oppose them. A majority believe President Donald Trump is overly willing to use military force.

Iran’s retaliatory strikes have targeted U.S. bases in the region, extending toward the Eastern Mediterranean. The UK defense secretary confirmed that two ballistic missiles were launched toward Cyprus but were intercepted. While London stopped short of confirming that British bases were directly targeted, regional security risks have clearly escalated.

Dubai’s perception as a “safe haven” has also been shaken. Drone and missile debris reportedly caused limited damage near Palm Jumeirah and Burj Al Arab, underscoring how close the conflict has come to commercial hubs heavily populated by expatriates.

For now, Gulf states appear reluctant to enter the conflict directly.

How Long Will This Last?

Two questions dominate market thinking:

1. Will the war remain contained, or will it broaden?

2. How long will uncertainty persist?

The longer uncertainty endures, the more durable its impact on pricing. If oil, shipping costs, insurance premiums and risk premia remain elevated, inflation expectations and central bank projections may need to be recalibrated.

Consider Dubai International Airport — one of the world’s busiest hubs. A prolonged disruption would not simply mean canceled flights, but significant economic spillovers across trade, tourism and global supply chains.

Implications for Türkiye

On the political front, there has been no notable escalation in Türkiye–Israel tensions. We do not anticipate a material shift at this stage.

From a military perspective, recent events have once again highlighted the importance of air defense systems and advanced missile capabilities.

Economically, Türkiye’s status as a net energy importer means higher oil prices will weigh on inflation and the current account balance. However, given our base case that oil prices will not remain elevated for an extended period, we do not expect long-lasting macroeconomic damage.

There is also a counterbalancing factor: gold.

With gold representing a significant share of the Central Bank’s net foreign position, and with Turkish households heavily invested in precious metals, rising gold prices may partially offset the negative impact of higher oil prices.

Defense and cybersecurity stocks may continue to outperform in what increasingly resembles a more fragmented and less constructive global order.

Market Snapshot

Early trading shows:

• Gold briefly rising to $5,390 per ounce before easing toward $5,350

• Silver peaking near $96 before retreating

• Bitcoin falling to $63,000 over the weekend before stabilizing near $66,000

While risk appetite is clearly weaker, there is no evidence of systemic panic.

In Türkiye:

• USD/TRY opened around 43.96

• CDS spreads rose to 238 basis points, the weakest level in three months

The Central Bank of the Republic of Türkiye introduced measures to support FX market stability, including TL-settled forward FX sales and a temporary suspension of one-week repo auctions. With the policy rate at 37%, effective funding costs could gradually move toward the upper band of the interest corridor at 40%, signaling a de facto tightening stance aimed at curbing FX demand.

In simpler terms, authorities appear to be implementing a cautious, indirect rate tightening until volatility subsides.

Global Data and AI Volatility

Asian equities opened lower, with Tokyo down 1.3% and Hong Kong off 1.5%. U.S. futures also point to modest declines.

Meanwhile, artificial intelligence continues to generate sectoral volatility. Concerns that AI may disrupt business models in software and finance have weighed on technology stocks. February marked the weakest monthly performance for U.S. equities in a year, reflecting uncertainty over who will ultimately benefit from the AI transformation.

This week’s U.S. payroll data will be critical. Strong employment could delay rate-cut expectations; weak data could reinforce slowdown concerns.

The 10-year U.S. Treasury yield has eased to 3.97%, its lowest level in 11 months — underscoring ongoing demand for safe-haven assets.

Bottom Line

The geopolitical fault line has clearly fractured. Risk appetite is subdued, but markets are not in full panic mode.

Energy prices, shipping routes and inflation expectations remain the central transmission mechanisms. Unless the conflict broadens materially or oil prices sustain triple-digit levels, current volatility may remain contained.

For now, markets are cautious — not capitulating.

By Emre Değirmencioğlu
Group Manager – Treasury Department, Kıbrıs İktisat Bankası

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