The Middle East isn’t just about oil, and that’s bad news

Whenever tensions rise in the Middle East, the market’s first reaction is usually for oil prices to go up, especially when the conflict involves a major exporter or threatens shipping in the region, as is happening now with Iran.

But instability in the region could affect far more than just energy markets or safe havens like gold (XAUUSD).

One of the less obvious winners in the past week, for example, has been aluminium. Prices have climbed to their highest level in four years as the Gulf accounts for roughly 9% of global aluminium production and an even larger share of internationally traded metal, making the region a key link in the global supply chain.

Another one is fertilizers. A disruption around the Strait of Hormuz could affect natural gas supply, a key input in the production of nitrogen fertilizers. On top of that, Qatar and Saudi Arabia are major exporters of urea, ammonia, and diammonium phosphate, which are essential nitrogen and phosphate fertilizers.

As for alternative supplies, Russia could, in theory, help fill some of the gap, but Europe isn’t exactly rushing to increase imports of Russian gas or metals like aluminium under the current sanctions regime.

What does all of this mean?

In short, the economic consequences of Middle East tensions go far beyond just higher energy prices. Thus, if the conflict drags on — and especially if the Strait of Hormuz becomes a sustained zone of military activity — the resulting inflationary pressure could eventually force central banks to reconsider their current monetary policy paths.

For the eurozone, Bank of America says that if oil stays around $80 per barrel and European TTF gas hovers near €50 per MWh for the next couple of months, inflation could peak at about 2.5% in March–April and then fall below 2% by late summer. In that scenario, GDP growth would stay near 1%, so the ECB would likely hold off on tightening policy.

But if oil hits $100 and gas rises to €60, inflation in 2026 could average around 2.4%, exceed 3% in the second quarter, and growth could slow to about 0.8%, prompting the regulator to consider hiking interest rates.

As for the United States, investors already expect the Federal Reserve to delay rate cuts by at least one meeting, pushing forecasts from July to September…