Commentary · Sep 30, 2026

Türkiye’s disinflation is paying the Iran war’s bill

Türkiye’s central bank has held at 37 per cent since January as the Iran war lifts energy costs. The same war makes Türkiye a more valuable route for its neighbours’ trade.

Connectivity & Trade Turkey & Middle East

A stunning daytime view of İstanbul's Bosphorus and skyline, featuring the Çamlıca Tower. — Talha Uğuz / Pexels

Contents

Key takeaways

Türkiye’s central bank held its policy rate at 37 per cent on 10 September 2026, its fifth straight hold after a January cut from 38 per cent.
Annual consumer inflation was 31.51 per cent in August 2026, and the central bank raised its end-2026 forecast from 26 to 28 per cent.
Gross reserves rose from $155 billion on 27 March to $184.2 billion by early September, after a fall of more than $30 billion in the first weeks of the war.
A one-year Kirkuk–Ceyhan deal signed on 1 August sets a minimum of 750,000 barrels a day, against actual flows of about 170,000.

Türkiye went into 2026 with inflation falling and its central bank starting to cut. Seven months into the war between the United States, Israel and Iran, the disinflation has not stopped, but it has slowed to a crawl, and the bill for that is being paid in interest rates, reserves and an energy deficit. The war has also handed Ankara a larger regional role, as Iraq looks for ways round a closed Strait of Hormuz. The difficulty is that the same shock that makes Türkiye more useful to its neighbours is what keeps its own economy on a tight leash.

What the central bank has done

The Central Bank of the Republic of Türkiye cut its one-week repo rate from 38 to 37 per cent in January and has left it there since. On 10 September it held for the fifth meeting in a row, keeping the overnight lending and borrowing rates at 40 and 35.5 per cent. Its statement promised a tight stance "until price stability is achieved" and said it remained "highly attentive to upside risks on inflation".

The bank's own forecasts show how much ground has been lost. In August Governor Fatih Karahan raised the end-2026 inflation forecast to 28 per cent, from 26 per cent in May. He kept a path of 15 per cent for end-2027 and 9 per cent for end-2028 towards the 5 per cent medium-term target. Markets are less hopeful: the bank's September summary records a year-end expectation of 29.4 per cent among market participants and a 12-month expectation of 45.6 per cent among households.

Where inflation actually stands

TurkStat put annual consumer inflation at 31.51 per cent in August, down from 31.75 per cent in July and the third monthly decline in a row. Prices still rose 1.84 per cent in the month. The core C index, which strips out energy, food, alcohol, tobacco and gold, was 30.07 per cent. Annual producer inflation was 27.95 per cent. The trend is down, but it is moving by fractions of a point a month.

Readers should know that the official number is contested at home. The independent ENAG group, run by academics, put August inflation at 49.03 per cent. Turkish Minute, reporting both, attributes the gap of about 17.5 points to different price samples, weights and collection methods. The central bank sets policy on the TurkStat figure, and the gap between that figure and household expectations is itself a measure of how far credibility still has to be rebuilt.

The war reaches Türkiye through energy

Türkiye imports most of its oil and gas, so the war arrives as a price. The bank's September summary noted that energy prices rose 5.46 per cent in August alone and that Brent averaged about $91 a barrel in August and $103 in September up to the meeting, citing "developments in the Strait of Hormuz". Karahan described oil falling back to pre-war levels after the US–Iran agreement in June and then rising again as shipping through the strait came "to a near standstill".

The external accounts show the cost. Official data reported by Anadolu Agency put the January–August trade deficit at $65.79 billion, with exports covering 73.8 per cent of imports. The 12-month current-account deficit had reached $38.9 billion by June. Reserves took the first hit: in March Turkish Minute reported a fall of more than $30 billion in the two weeks after the 28 February strikes. They have since been rebuilt. Gross reserves stood at $155 billion on 27 March and $184.2 billion by the September meeting, the bank says, and the five-year CDS premium had eased to about 220 basis points.

That recovery is real, and it has given the bank the means to keep the lira's decline slow and orderly. But it has been bought with a policy rate that leaves little room for credit growth. GDP grew 2.3 per cent year on year in the second quarter. The bank describes demand as "disinflationary", which is another way of saying the economy is being held back on purpose.

What the war offers Ankara

The war has also raised Türkiye's value as a route. Iraq's oil exports through the Gulf collapsed after February, and on 1 August BOTAŞ signed a one-year transit deal with Iraq's SOMO and NOC for the Kirkuk–Ceyhan pipeline. Al Jazeera reported a minimum of 750,000 barrels a day in the agreement against actual flows of about 170,000, and an Iraqi aim of more than one million barrels a day under a longer deal. Iraq was Türkiye's fourth-largest export market in August, at $1.08 billion.

The gains are uneven. The president of the Turkish Exporters' Assembly, Mustafa Gültepe, said shipments to the Gulf fell by 39 per cent in the first 12 days of the war, blaming disrupted transport and higher energy and freight costs. Chemicals, food, defence goods and clothing were hit hardest. Trade with Iran itself is squeezed from two sides: by sanctions, and by the US naval blockade whose lifting Tehran has now put on the negotiating table. A route is only as valuable as what can legally and physically move along it, and for now the Iraqi corridor is the part that works.

Why the two roles pull against each other

A country that wants to be the land bridge for Iraqi oil, the market for Iranian gas and the transit route for Gulf trade needs cheap finance, stable prices and a currency investors trust. Türkiye has the third only in part, and is paying for it by giving up the first two. Every month that Hormuz stays shut raises its strategic value and its import bill at the same time.

There is a case that the trade-off is worth it. Reserves are higher than before the war, the risk premium is lower than in March, and the bank has not had to reverse course. On that reading, Türkiye has absorbed a large oil shock without a currency crisis or an emergency rate rise. The weaker reading is that disinflation has stalled at around 30 per cent, a level at which contracts and wages keep indexing, and that the bank's 2027 path depends on an oil price it does not control.

What to watch

September inflation is due on 5 October and will show whether the monthly rate falls back below 2 per cent. The next decision on rates will test the bank's claim that it can ease once energy stabilises. The Hormuz talks matter more than either: Iran offered at the end of September to reopen the strait within seven days in return for sanctions relief and the release of frozen assets, while Washington wants a single agreement that also covers the nuclear file. Actual throughput on Kirkuk–Ceyhan, rather than the contracted figure, will show how much of Türkiye's new role is real.

Sources

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