Middle East Conflict Threatens Global Inflation as Oil Shock Puts Central Banks on High Alert

The U.S. and Israel launched strikes on Iran over the weekend, triggering missile retaliation across Gulf countries and effectively stalling tanker traffic through the Strait of Hormuz. Brent crude has risen 36% this year, reaching $82.76 a barrel on Wednesday near its highest level since January 2025, while WTI crude rose to $75.48. A prolonged strait closure could push Brent above $100 per barrel and European natural gas prices beyond €60 per megawatt-hour. According to Bank of America, U.S. inflation already stands at 2.4%, above the Federal Reserve's 2% target. Asian economies face the sharpest exposure, with regional inflation potentially rising 0.7 percentage points under a six-week strait closure and oil at $85 per barrel, according to Goldman Sachs. BMI estimates the conflict could add 7 to 27 basis points to headline consumer inflation across Asia.