Central banks face pivotal September as Middle East war stokes inflation

Friday marks six months since the United States and Israel launched strikes on Iran on Feb. 28, triggering a conflict that has upended global energy markets, stalled the world's disinflation trend, and forced central banks into a new cycle of difficult policy decisions.

Energy Shock and Market Resilience

The most immediate economic consequence has been felt in energy markets. The closure of the Strait of Hormuz — described by the International Energy Agency as the "largest supply disruption in the history of the global oil market" — has cut Gulf crude exports by roughly 47%. Brent crude briefly topped $120 a barrel in April before settling around $90 in 2026, up from approximately $70 last year.sundayworld+1

Yet global equity markets have proved unexpectedly resilient. The MSCI World Index reached a record market value of $105 trillion this month, adding nearly $7 trillion since the conflict began, driven largely by enthusiasm for artificial intelligence investments. Gulf economies, however, have suffered directly: Saudi Arabia's exports contracted 10% between the first and second quarters, Dubai property sales fell by as much as 80%, and Qatar's economy could shrink by nearly 30% this year due to damage at the Ras Laffan gas facility.sundayworld

Inflation and Food Security Under Pressure

The energy shock has reversed much of the disinflation progress made in prior years. Eurozone annual inflation rose to 2.9% in July, up from 2% a year earlier. In the U.K., consumer prices climbed to 2.9% annually, a four-month high. The IMF in July lowered its 2026 global growth forecast to 3.0% and warned that global disinflation has stalled.turkiyetoday+2

The United Nations Food and Agriculture Organization reported that food prices reached their highest level in more than three years in July, with fertilizer shipment disruptions and a strong El Niño pattern compounding the pressure.sundayworld

Central Banks Face Tough September

IMF Managing Director Kristalina Georgieva said on Aug. 25 that the global economy has weathered the energy shock better than feared, but raised concerns about deteriorating fiscal conditions and rising bond yields. Against that backdrop, central banks are heading into a consequential September. The European Central Bank is widely expected to raise rates by 25 basis points on Sept. 10, while markets price a 63% probability the Federal Reserve holds steady. The Bank of Japan, which raised its policy rate to 1% in June — its highest in 31 years — is expected to hike again on Sept. 18.reuters+1

With winter approaching and the Strait of Hormuz still disrupted, the risk of renewed inflationary pressure looms over every decision.