Turkey Navigates Economic Challenges Amidst Iran Conflict

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Turkey Navigates Economic Challenges Amidst Iran Conflict

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The ongoing conflict involving Iran has presented significant economic challenges for Turkey, particularly impacting its efforts to stabilize its economy. The conflict, which escalated with Israeli and US attacks on Iran in February 2026, has led to a sharp increase in oil prices, with Brent crude hovering near $80 per barrel. This surge in energy costs is a major concern for Turkey, which imports roughly 90% of its energy needs.

Economists, such as Mahfi Eğilmez, have highlighted that sustained high oil prices could substantially worsen Turkey’s current account deficit and fuel inflation. Goldman Sachs estimated in March 2026 that if oil prices remain at current levels, Turkey’s current account deficit could rise by $18 billion. The country’s current account deficit already stood at $25.2 billion in 2025. Each $10 increase in oil prices is projected to add at least $2.5 billion to the current account deficit and push inflation up by about 1 percentage point.

The conflict’s economic spillovers also include potential disruptions to global trade routes, especially the Strait of Hormuz, a critical chokepoint for a significant portion of the world’s oil and liquefied natural gas. Such disruptions contribute to increased shipping and freight costs, further exacerbating inflationary pressures. Turkey’s pre-conflict year-end inflation expectations were in the 24% to 26% range, but the current outlook revised this upward to 30% to 34% under a persistent energy price scenario. The Turkish Central Bank’s efforts to control inflation, which reached 32.37% annually in April 2026, are being tested by these external shocks.

Despite these challenges, Turkey has been pursuing a more independent and proactive foreign policy, aiming to position itself as a regional economic and transit hub. This includes initiatives like the “Middle Corridor” through the Caucasus. However, the reliance on imported energy and the structural weaknesses of its economy make Turkey particularly vulnerable to regional instability and global energy price fluctuations

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