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News from Turkey

Morning Report: War Expands, Energy Prices Surge: Global Markets Enter Liquidation Mode

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By Emre Değirmencioğlu, Kıbrıs İktisat Bankası

Summary: Escalating hostilities in the Middle East have triggered sharp movements in global energy markets and financial assets. Oil and gas prices have surged while investors rapidly unwind positions across equities, commodities and currencies. The shift toward cash and the strengthening U.S. dollar reflect a broad “liquidation” trend driven by rising geopolitical uncertainty.

Markets Move From Complacency to War Pricing

Global financial markets, which initially appeared relatively indifferent to the outbreak of hostilities earlier in the week, shifted decisively on Tuesday into full-scale war pricing mode.

Israeli and U.S. forces continued strikes on military and strategic targets inside Iran, while Tehran responded with missile and drone attacks targeting U.S. assets and allied facilities across the Gulf region.

As the conflict entered its fifth day, explosions were reported across multiple locations including Tehran. The United States began evacuating diplomatic personnel from several nearby countries and temporarily closed certain missions due to growing security risks.

The widening scope of the conflict became clearer as violence spilled into Lebanon. Following Hezbollah attacks on Israel, Israeli forces launched retaliatory operations, raising concerns that the war could expand into a broader regional confrontation.

Energy Markets React With Sharp Price Spikes

Rising geopolitical risk triggered strong moves in global energy markets.

Brent crude oil prices climbed above $85 per barrel, representing a roughly 35% increase since the start of the year.

Natural gas prices in Europe moved even more dramatically.

Front-month European gas contracts surged from €32 per megawatt-hour last week to nearly €65, marking an increase of more than 100%.

Two developments intensified supply concerns:

  • Iran’s disruption of shipping traffic through the Strait of Hormuz

  • Qatar’s temporary suspension of LNG production

Meanwhile, tanker shipping costs surged to record levels, further amplifying upward pressure on energy prices.

Global Equities Come Under Pressure

Fears that the conflict could drag on longer than expected and threaten energy infrastructure triggered broad selling across global equity markets.

U.S. stock markets, which had ironically closed higher at the start of the week, ended Tuesday down roughly 1%.

Asian markets experienced significantly heavier losses.

South Korea’s stock market — which had been among the strongest performers globally in recent months — fell sharply:

  • More than 7% on Tuesday

  • Another 10% drop the following morning

Risk sentiment deteriorated particularly quickly in energy-import-dependent economies.

South Korea’s won currency fell to its weakest level in 17 years, reflecting rapid foreign capital outflows.

Tokyo’s benchmark index also declined more than 4%, bringing its total loss over three trading days close to 10%.

Global Markets Enter “Liquidation” Phase

The prospect of a prolonged conflict in the Middle East has triggered a widespread liquidation trend across financial markets.

In such environments investors typically:

  • sell risk assets

  • raise cash positions

  • move toward safe-haven currencies

At the moment, the U.S. dollar is emerging as the dominant safe-haven asset.

The popular investment strategy of “sell dollars, buy commodities and precious metals” has quickly reversed as geopolitical risks intensified.

U.S. Dollar Surges

The U.S. Dollar Index (DXY) — which measures the dollar against a basket of major currencies — has strengthened sharply.

After testing 95 levels in late January, the index climbed above 99, reaching its highest level in three months.

During periods of heightened global risk, investors typically shift toward U.S. assets, supported by the deep liquidity of the U.S. Treasury market.

Euro and Sterling Weaken

The strengthening dollar pushed major currencies lower.

  • EUR/USD fell to around 1.15, marking a three-month low

  • British pound slipped below 1.33

Precious Metals Also Hit by Liquidation

Even traditional safe-haven assets were caught in the liquidation wave.

Earlier in the week:

  • Gold had risen above $5,400

  • Silver had approached $96

But aggressive selling pushed prices sharply lower:

  • Gold dropped to $4,995

  • Silver fell to $78

Silver prices declined nearly 20% within two days, highlighting the scale of the liquidation pressure.

Crypto Markets Remain Fragile

In cryptocurrency markets, Bitcoin continues to fluctuate between $65,000 and $69,000.

However, technical indicators suggest that downside risks remain elevated.

Sell-Off May Prove Temporary

Analysts believe the recent liquidation wave largely reflects investors closing profitable positions to offset losses elsewhere.

The surge in energy prices has raised concerns that:

  • inflation could accelerate again

  • central banks might delay planned rate cuts

Even so, the recent selling pressure may not necessarily persist.

After Tuesday’s sharp declines, precious metals already showed more balanced price action early Wednesday, suggesting markets may stabilize once initial liquidation pressures subside.

For now, investors appear to be waiting before rebuilding positions.

As traders often say: “Trade never ends.”

Turkish Markets Under Pressure

Turkish financial markets are also closely monitoring developments in the Middle East.

Domestic inflation data released Tuesday largely matched expectations but was overshadowed by the geopolitical situation.

According to official statistics:

  • Consumer prices rose 2.96% month-on-month in February

  • Annual inflation increased to 31.53%

Food prices — influenced partly by the Ramadan period — rose nearly 7%, while clothing prices declined more than 5%.

Turkey’s central bank’s preferred core inflation indicator (C index) increased 1.53%, making it the most moderate component of the data.

Rate Cuts Now Less Likely

If energy prices remain elevated, Turkey’s inflation outlook could deteriorate.

As a result, analysts increasingly expect the Central Bank of the Republic of Türkiye (CBRT) to pause its rate-cut cycle at its March meeting.

Turkish Assets Face Selling Pressure

Geopolitical risk has weighed on Turkish financial assets in recent days.

Over the past three sessions:

  • The banking index fell 15%

  • The BIST-100 index dropped more than 7%

In bond markets:

  • Two-year benchmark yields climbed above 37.6%

Meanwhile, Turkey’s five-year CDS risk premium rose to 254 basis points, the highest level in four and a half months.

Central Bank Interventions

Liquidity measures by the CBRT pushed the Turkish lira reference rate to 39.93%, approaching the upper limit of the policy corridor.

The USD/TRY exchange rate remained relatively stable around 43.96, supported by official interventions.

According to the central bank’s analytical balance sheet, roughly $4 billion in FX sales were conducted in transactions dated March 2.

Oil Prices Ease Slightly

Oil prices softened slightly after President Donald Trump announced that the United States would escort oil tankers passing through the Strait of Hormuz and provide insurance guarantees.

Brent crude, which had briefly touched $85.12, fell back to around $82 per barrel.

European natural gas prices also eased, declining from €65 to roughly €54 per megawatt-hour.

War Duration Remains Uncertain

Many analysts initially expected the conflict to be brief and limited to targeted military strikes.

However, Iran’s asymmetric responses have introduced greater uncertainty about the duration of the war.

The conflict is now affecting a broader geography extending from Arab Gulf states to the Eastern Mediterranean, increasing geopolitical risks.

A prolonged war would likely impose significant costs on both the global economy and financial markets.

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