Oil surge amid Iran tensions clouds Fed rate outlook

ISTANBUL

Oil prices have risen sharply following recent US and Israeli military strikes on Iran, a development expected to stoke inflationary pressures and potentially alter the Federal Reserve’s policy roadmap.

The escalating conflict has intensified market volatility, triggering a surge in crude prices amid growing uncertainty over Middle Eastern trade routes.

Brig. Gen. Ebrahim Jabbari, a senior adviser to Iran’s Revolutionary Guard Corps commander-in-chief, announced the closure of the Strait of Hormuz to maritime traffic on March 2 following the Feb. 28 strikes, warning that any vessel or oil tanker passing through the waterway would be targeted.

US Secretary of State Marco Rubio said Iran poses an immediate threat to the US and Israel, adding that the American military has yet to make its strongest move. Washington is also reportedly considering measures to mitigate rising domestic energy costs driven by the global oil price spike.

The Strait of Hormuz is a strategically vital waterway at the mouth of the Persian Gulf, linking Middle Eastern oil and liquefied natural gas supplies to global markets via the Arabian Sea and the Indian Ocean.

The corridor handles roughly 20 million barrels of oil and petroleum products per day, accounting for nearly one-third of all crude transported by sea.

Major producers, including Saudi Arabia, the United Arab Emirates, Kuwait, Iraq and Qatar, rely heavily on the passage. European markets and major Asian economies such as China, India, Japan and South Korea also depend on the strait for energy imports.

In retaliation for the US-Israeli operation, Tehran targeted regional oil and gas infrastructure, including drone strikes on Saudi Aramco facilities in Ras Tanura in eastern Saudi Arabia.

State-owned QatarEnergy reportedly halted production at its major liquefied natural gas facility in Ras Laffan following drone strikes earlier this week.

These developments have further tightened energy markets, pushing Brent crude above $80 per barrel for the first time since January 2025.

Deepening geopolitical tensions and mounting supply risks have made forecasting the Fed’s policy trajectory increasingly difficult.

The Fed is widely expected to hold interest rates steady at 3.5% to 3.75% until at least July. However, upcoming labor market data and global energy developments are likely to shape its short-term policy direction.

The situation mirrors the global economic fallout following the outbreak of the Russia-Ukraine war in 2022, when surging oil and commodity prices forced the Fed to aggressively hike rates.

New wave of cost inflation may loom

Kutay Guzgor, director of research at Turkish firm Kuveyt Turk Investment, told Anadolu that the closure of the strait has triggered a major supply shock across global energy markets, driving up logistics costs and insurance premiums.

He said the disruption is likely to generate a new wave of cost inflation throughout global supply chains, prompting major central banks to adopt a stricter wait-and-see approach to manage investor risk sentiment.

Guzgor said the Fed may keep rates elevated until it becomes clear whether the energy shock represents a temporary supply constraint or signals a more persistent stagflation risk.

He also expects Türkiye’s central bank to maintain a cautious stance and pause rate cuts at its March 12 meeting.

According to Guzgor, Türkiye’s BIST 100 stock index has experienced heightened volatility due to geopolitical risks, placing short-term pressure on industrial and banking stocks.

“During such turbulent periods, companies’ cash flows and foreign exchange positions become more critical,” he said. “While investors may respond to incoming data in the short term, concerns over energy supply security and central banks’ sensitivity to inflation suggest that risk-focused balancing will take precedence over cautious optimism in the coming period.”

* Writing by Emir Yildirim