Economy
Iran war reveals Trump’s tight spot: The economy
Seven weeks of war have failed to remove Iran’s leadership or force it to meet all of U.S. President Donald Trump’s demands, but for both U.S. adversaries and allies, it has cast a spotlight on one of his main vulnerabilities: economic pressure.
Even with Iran’s announcement on Friday that it was reopening the Strait of Hormuz to shipping, the Middle East crisis has revealed the limits of Trump’s willingness to tolerate domestic economic pain.
Trump joined Israel in attacking Iran on Feb. 28 based on what he said were imminent security threats, especially over its nuclear program. But now, with U.S. gasoline prices high, inflation rising and his approval ratings down, Trump is racing to secure a diplomatic deal that could stem the fallout at home.
Iran has taken a beating militarily, but demonstrated it can exact economic costs that Trump and his aides underestimated, unleashing the worst-ever global energy shock, analysts say.
Rising energy costs, recession risks
Trump has often publicly shrugged off domestic economic concerns driven by the war.
However, he can hardly ignore that although the U.S. does not depend on one-fifth of global oil shipments that were effectively blocked by Iran’s chokehold on the strait, surging energy costs have hit U.S. consumers.
The International Monetary Fund’s (IMF) warning of a risk of global recession adds to the gloom.
Pressure for a way out of the unpopular war has mounted as Trump’s fellow Republicans defend narrow majorities in Congress in the November midterm elections.
None of this has been lost on Iran’s leaders, who have used their grip on the strait to push Trump’s team to the negotiating table.
Analysts say U.S. rivals China and Russia may draw their own lesson: while Trump has shown an appetite for military force in his second term, he looks for a diplomatic off-ramp as soon as the economic heat becomes uncomfortable at home.
“Trump is feeling the economic pinch, which is his Achilles heel in this war of choice,” said Brett Bruen, a former foreign policy adviser in the Obama administration who heads the Global Situation Room strategic consultancy.
White House spokesperson Kush Desai said that while working toward a deal with Iran to resolve “temporary” energy market problems, the administration “has never lost focus on implementing the president’s affordability and growth agenda.”
“President Trump can walk and chew gum at the same time,” he said.
Feeling the pressure
Trump’s abrupt shift on April 8 from airstrikes to diplomacy followed pressure from financial markets and parts of his MAGA base.
Some of the economic pain is borne by U.S. farmers, a key Trump constituency, due to disrupted fertilizer shipments, and is also reflected in higher airfares from increased jet fuel prices.
With the clock ticking on a two-week cease-fire, it remains to be seen whether a president who embraces unpredictability will reach a deal that meets his war goals, extend the truce beyond April 21, or relaunch the bombing campaign.
But global oil prices fell sharply and financial markets, which Trump often sees as a barometer of his success, flourished on Friday after Iran said the strait would be open for the remainder of a separate U.S.-brokered 10-day truce between Israel and Lebanon.
Trump was quick to declare the strait safe as he touted a deal-in-the-making with Iran that he said would be completed soon and mostly on his terms. But Iranian sources told Reuters gaps remained to be resolved.
Experts have warned that even if the war ends soon, the economic damage could take months if not years to fix.
A key question is whether any deal achieves the objectives Trump has laid out, including closing Iran’s path to a nuclear weapon, which Tehran has long denied it is seeking.
Iran has a stockpile of highly enriched uranium believed to be buried by U.S.-Israeli strikes last June. Trump told Reuters on Friday that the emerging deal calls for the U.S. to work with Iran to recover the material and bring it to the U.S. Iran denied agreeing to a transfer anywhere outside its territory.
A senior Trump administration official said the U.S. was maintaining “several redlines” in negotiations with Iran.
At the same time, Trump’s call at the war’s outset for Iranians to overthrow their government has gone unheeded.
Allies from Europe to Asia were initially stunned by Trump’s decision to go to war without consulting them or seeming to take into account the risk to them of Iran closing the strait.
“The alarm bell ringing for allies right now is how the war has highlighted that the administration can act erratically, without much regard for consequences,” said Gregory Poling, an Asia expert at the Center for Strategic and International Studies in Washington.
After Russia’s 2022 invasion of Ukraine, former Democratic President Joe Biden was cautious about imposing sanctions on Moscow’s energy sector out of concern for reducing oil supplies and inflating U.S. gas prices.
But Trump, who ran for a second term on promises of cheap gas and low inflation, has shown himself sensitive to accusations that his policies raise prices. An example was when he reduced tariffs on China last year after it retaliated.
Miscalculations
Just as Trump misjudged Beijing’s response in a trade war, he seems to have miscalculated how Iran might strike back economically in a shooting war, by attacking energy infrastructure in Gulf states and blocking the strategic waterway between them.
Trump mistakenly believed the war would be a limited operation like the Jan. 3 lightning raid in Venezuela and June’s strikes on Iran’s nuclear sites, U.S. officials have said privately.
But this time the repercussions are more far-reaching.
The message to Asian allies such as Japan, South Korea and self-ruled Taiwan may be that Trump, who is looking for warmer ties with China, can be expected to pursue his regional goals with less regard for their geopolitical and economic security.
Analysts believe those governments will adjust for any contingency, such as a Chinese bid to seize Taiwan, out of concern over Trump’s reliability.
European countries, annoyed they are bearing so much of the economic brunt of a war that they never asked for, are likely to be even more nervous about Trump’s commitment to continued aid to Ukraine in its war with Russia, analysts say.
Gulf Arab states want the war to end soon, but will be unhappy if Trump cuts a deal without security guarantees for them.
“An end to this conflict should not also create a continuous instability in the region,” said Anwar Gargash, diplomatic adviser to the president of the United Arab Emirates.
Most MAGA supporters have stuck with Trump despite some prominent dissenting voices. But there are growing doubts whether he can help his party recover lost ground, especially with independent voters, in time for the midterms.
“He’s aware that a significant portion of the country outside his MAGA base, and even some within the MAGA base, are vehemently opposed to what he’s done,” said Chuck Coughlin, an Arizona-based political strategist.
“And I think the price is going to come due.”
China’s foreign minister said Friday that Canada could surpass its goal of increasing exports to China by 50% by 2030, signaling potential for deeper trade ties during talks with Canadian Foreign Minister Anita Anand.
Wang said he thought Canada’s exports to China could increase by 100%, building on the momentum between the countries.
“Canada is focused on growing our economy and diversifying our trading relationships,” Anand said during the meeting. “The Canada-China economic relationship is significant,” she said.
Wang is on a three-day visit to Canada, the first visit by a Chinese foreign minister in a decade and the latest step to improve ties. On Friday afternoon, he shook hands with Prime Minister Mark Carney ahead of a private meeting. Canada and China struck an initial trade deal in January to slash tariffs on electric vehicles and canola, when Carney became the first Canadian prime minister to visit China since 2017. China is Canada’s second-largest trading partner, and Carney has sought to reduce his country’s overwhelming reliance on the United States after U.S. President Donald Trump imposed tariffs on Canada, a longtime ally. Amid an ongoing trade war with the U.S., Carney has vowed to double Canadian exports to other markets in the next decade and signed more than 20 economic and security deals in the last year.
On Thursday, Carney delivered a speech in New York calling for a “new partnership” with the U.S., saying that a stronger Canada would “help make America great again.”
The Chinese foreign minister’s Ottawa visit comes after the Canadian warship HMCS Charlottetown completed a routine transit through the Taiwan Strait on May 23. China said on Friday it firmly opposes any attempt by any country to undermine its sovereignty and security “under the pretext of freedom of navigation.”
Earlier this month, Conservative lawmaker Michael Chong travelled to Taiwan, where he met with Taiwanese President Dr. Lai Ching-te and other senior officials. Chong said in a statement his visit was intended to “show solidarity with a democracy at the front lines of intimidation from the People’s Republic of China” and to assert Canada’s sovereignty, after a warning from the Chinese ambassador to Canada regarding politicians visiting Taiwan.
The top tourism body said on Friday that Turkish applicants were being effectively “shut out” of the Schengen visa application system, citing persistent appointment shortages and alleged technical manipulation of booking platforms.
The remarks by the Turkish Travel Agencies Association (TÜRSAB) came after data showed Türkiye was the second-largest source of Schengen visa applications worldwide in 2025.
According to statistics published by the European Commission, applications to Schengen Area countries reached 11.93 million last year, an increase of 1.8% from 2024.
Türkiye accounted for nearly 1.27 million applications, ranking second after China. The figure compared to 1.17 million in 2024 and just over 1 million in 2023.
The rejection rate for Turkish applicants stood at 14.6% last year, up 0.1 percentage points from 2024.
The TÜRSAB said in a statement that the data confirms a structural access problem rather than a lack of demand.
Its Chair Firuz Bağlıkaya said Turkish citizens are often unable to even enter the application process because of limited appointment availability.
He argued that the system itself has become a barrier.
For years, Turkish citizens and businesses have complained about the EU’s visa system, including long appointment wait times, the issuance of very short-term visas and high rejection rates.
Bağlıkaya pointed to sharp declines in applications to key destinations such as Italy and France, which are among the most popular countries for organized tour programs.
According to EU data, applications to Italy fell by 32.3% year-over-year, while France recorded a 6% decline.
Bağlıkaya attributed the drop to reduced access to visa appointments, rather than weakening travel interest.
“Due to current practices, our citizens are shut out of the system before they even get a chance to submit a visa application,” he noted.
He further claimed that the appointment system is being exploited, alleging that limited time slots are rapidly captured by automated bot accounts and later resold at significantly higher prices.
Bağlıkaya said figures reportedly were reaching up to 1,000 euros ($1,165) per appointment in urgent cases.
“A stop must be put to this situation,” he stressed.
Diversified supply routes and infrastructure assets have helped Türkiye maintain energy stability despite disruptions around the Strait of Hormuz, while also reinforcing its position as a key link between producers and European markets.
The key transit route for roughly a fifth of the world’s oil and liquefied natural gas supply, the Strait of Hormuz was effectively shut after the U.S. and Israel launched strikes on Iran in late February, causing what is described as the biggest energy crisis ever, which sent global prices higher.
Data compiled from the Energy Market Regulatory Authority (EPDK) indicates that Türkiye’s supply structure remained broadly stable in the first quarter of the year.
Natural gas imports reached 19.2 billion cubic meters (bcm) in the January-March period, while crude oil and petroleum product imports totaled 3.32 million tons.
The U.S., Russia and Azerbaijan remained the leading suppliers of gas. In January, the U.S. accounted for approximately 35.7% of imports, followed closely by Russia at 35% and Azerbaijan at 13.4%. In February, the U.S. retained the top position, while Russia regained the lead in March.
On the oil side, Russia continued to dominate imports across the quarter, while Iraq, Kazakhstan and Saudi Arabia also held significant shares. Russia supplied roughly half of Türkiye’s crude imports in both January and March.
Despite global volatility, Türkiye did not experience major disruptions in its energy supply, benefiting from its diversified portfolio and extensive pipeline infrastructure, which also positions the country as a transit hub for regional energy flows.
A key component of this system is the southern Ceyhan Terminal, which serves as a major export gateway for crude oil from Iraq and Azerbaijan to global markets.
Crude oil is transported to Türkiye primarily through pipelines rather than maritime imports alone, including the Baku-Tbilisi-Ceyhan (BTC) pipeline and the Iraq-Türkiye Crude Oil Pipeline. These routes reduce reliance on maritime chokepoints and provide alternative corridors for regional producers.
According to data from the state oil and natural gas pipeline operator BOTAŞ, nearly 30.9 million barrels of oil were transported through the BTC pipeline in the first two months of the year.
The pipeline stands out as a critical route that delivers Caspian oil to global markets through a path outside of Russia and Iran.
The Iraq-Türkiye pipeline, which runs from Kirkuk to Ceyhan, resumed operations in March. With a daily capacity of around 1.5 million barrels, initial flows were expected to rise from 170,000 barrels per day toward 250,000 barrels.
On the gas side, Türkiye continues to act as a key energy corridor between producer countries and Europe, importing gas from Russia, Azerbaijan and Iran through long-term pipeline agreements.
Russia supplies gas via the Blue Stream pipeline, while the TurkStream system, with a total capacity of 31.5 billion cubic meters, delivers gas both for domestic consumption and European exports.
Azerbaijan’s gas flows through the Baku-Tbilisi-Erzurum pipeline and the Southern Gas Corridor, which includes TANAP and TAP, linking Caspian production directly to European markets. TANAP carries about 16 billion cubic meters annually, while TAP has an initial capacity of 10 billion cubic meters, expandable to 20 billion.
Türkiye has also strengthened regional interconnections through the Iğdır-Nakhchivan pipeline, which supplies gas to Azerbaijan’s exclave, reducing its dependence on Iranian deliveries. It boasts a capacity to carry 2 million cubic meters a day.
Meanwhile, Iranian gas continues to flow to Türkiye under long-term agreements via the Iran-Türkiye pipeline, which has a technical capacity of around 14 billion cubic meters per year.
Türkiye’s financial markets are heading into a data-heavy June period following the nine-day Eid al-Adha holiday break, with investors closely watching growth figures, inflation readings and a key central bank interest rate decision.
The calendar includes first-quarter gross domestic product (GDP) data, monthly inflation figures and the Monetary Policy Committee (MPC) meeting of the Central Bank of the Republic of Türkiye (CBRT).
Data on Monday will provide a snapshot of economic momentum at the start of 2026 that has been marked by the Iran war, which triggered the closure of the Strait of Hormuz, a key transit route for roughly a fifth of the world’s oil and liquefied natural gas supply.
That caused what is described as the biggest energy crisis ever, which sent global prices higher, pressuring countries that heavily rely on imports.
The Turkish Statistical Institute (TurkStat) is scheduled to release data that is likely to show the economy expanded by about 2.7% year-over-year in the first quarter of the year, according to surveys.
The economy grew 3.6% in 2025, with fourth-quarter growth recorded at 3.4%, extending a growth streak to 22 consecutive quarters.
Inflation, trade, labor data
Inflation, due next Friday, will be one of the most closely watched indicators.
Consumer prices rose 4.18% month-over-month and 32.37% on an annual basis in April, mainly driven by pressures amid the fallout from the Iran war.
The domestic producer index rose 3.17% month-over-month in April for an annual increase of 28.59%.
The central bank has flagged rising inflation risks, saying it’s closely monitoring the fallout of the conflict and potential second-round effects.
The bank earlier this month raised its end-2026 interim inflation target to 24% from 16% and lifted its end-2027 target to 15% from 9%. It set its end-2028 interim target at 9%.
A day earlier, Trade Minister Ömer Bolat is expected to announce the May foreign trade data.
April exports rose 22.3% year-over-year to $25.4 billion despite the challenging global environment.
The figure marked the second-highest monthly export figure in Türkiye’s history.
On the same day, the TurkStat will release April labor market statistics.
The unemployment rate fell to 8.1% in March, down 0.3 percentage points from the previous month, with the number of unemployed declining by 96,000 to 2.87 million.
Industrial production data for April is scheduled for June 10, following a March decline of 0.8% month-over-month and 1.1% year-over-year.
Central bank decision in spotlight
Markets will closely watch the CBRT’s June 11 policy meeting for signals on the monetary stance.
At its previous meeting, the central bank held its benchmark one-week repo rate steady at 37%.
In its last statement, the bank said geopolitical risks and energy price volatility continued to pose uncertainty for inflation.
It said policymakers were closely monitoring these factors for their impact on economic activity and the disinflation outlook.
Fiscal, sectoral data
Other data releases include financial investment returns, budget balance figures and sectoral confidence indicators throughout the month.
On June 12, the CBRT will publish the current account balance figures.
The balance registered a $9.67 billion deficit in March. Excluding energy and gold, the shortfall stood at nearly $3.89 billion.
The Treasury and Finance Ministry will be releasing the May budget figures on June 15.
Data from April showed a deficit of TL 338.7 billion and a year-to-date shortfall of TL 758.8 billion.
Additional data releases will include construction and services output, agricultural producer prices and housing sales.
Residential property sales in April rose 2.6% year-over-year to 126,808 units, according to TurkStat.
Türkiye’s installed electricity capacity rose to 125,410 megawatts (MW) as of the end of April, according to official data, propelled by a rapid growth in variable renewable sources such as solar and wind.
The Energy and Natural Resources Ministry said renewable sources accounted for 62.5% of total installed capacity, equivalent to 78,377 megawatts. The ministry also reported that domestically sourced capacity reached 71.7% of the total electricity mix.
Solar energy has emerged as the fastest-growing segment in Türkiye’s power system, reaching 26,769 megawatts and accounting for 21.3% of total installed capacity.
Wind power increased to 15,075 megawatts, representing 12% of total capacity.
Together, wind and solar reached 41,844 megawatts, or 33.3% of Türkiye’s total installed electricity capacity, meaning roughly one-third of installed capacity now comes from the two renewable sources alone.
Renewables dominate
Hydropower remains the single largest source of installed capacity at 32,338 megawatts, or 25.8%, followed by natural gas at 25,013 megawatts (20%).
Domestic coal accounted for 11,565 megawatts (9.2%), while imported coal stood at 10,456 megawatts (8.3%).
Smaller contributors included biomass at 2,396 megawatts (1.9%) and geothermal energy at 1,798 megawatts (1.4%).
Türkiye aims to raise combined wind and solar installed capacity to 120,000 megawatts by 2035.
To support the expansion, it plans to invest around $30 billion.
Expansion plans
Energy and Natural Resources Minister Alparslan Bayraktar said Türkiye had built a 26,769-megawatt solar capacity from scratch over the past 13 years.
Bayraktar said solar power is expected to soon become the largest single source in the system.
“By the end of this year, solar power will surpass hydropower to reach the top spot in total installed capacity,” he noted.
He added that renewable energy continues to expand its share in line with Türkiye’s long-term climate and energy targets, including its 2035 net-zero emissions ambition.
The minister also pointed to record additions in wind and solar capacity in recent years and said further expansion would be marked by President Recep Tayyip Erdoğan at an upcoming mass ceremony for renewable energy investments scheduled for next week.
The European Union has fined Temu 200 million euros ($232 million) after an investigation revealed the Chinese e-commerce giant failed to protect consumers from illegal products like toxic or hazardous toys and unsafe electronics.
The 27-nation EU’s fine follows preliminary findings last year that Temu was exposing consumers to a high risk of products sold on its platform like baby toys and small electronics that didn’t comply with EU consumer safety rules.
The bloc’s executive arm issued the penalty under the Digital Services Act, or DSA, a wide-ranging rulebook that requires online platforms to do more to keep internet users safe from harmful content or dodgy goods, under the threat of hefty fines.
Temu said it disagreed with the decision and considered the fine “disproportionate.”
The decision relates to the commission’s first DSA evaluation of Temu in 2024 “and does not reflect the current state of our systems,” the company said.
“Temu engaged constructively with the Commission throughout the process and has since taken further steps to strengthen risk assessment, platform governance, and user protection,” it said in a statement.
The company is popular because it offers cheap goods – from clothing to home products – shipped from sellers in China. The platform has 92 million users in the EU and is owned by PDD Holdings Inc., which also owns the popular Chinese e-commerce site Pinduoduo.
The European Commission said Temu failed to identify, analyze and assess the systemic risks of illegal goods for sale on the platform and the resulting harm to European consumers.
Investigators had carried out a “mystery shopping exercise” that turned up a number of “non-compliant” products, including many electronic device chargers that failed basic safety tests. They also found a very high percentage of baby toys that posed safety risks, either because they contained chemicals at levels that exceeded safety limits or because they had parts that came off and could be a suffocation risk.
The commission said failing to do proper risk assessments is a particularly serious breach of the bloc’s digital rules.
Risk assessments are “not box‐ticking exercises,” European Commission Executive Vice-President Henna Virkunnen said.
“Temu’s risk assessment underestimates concrete risks, lacks specificity, is not grounded in solid evidence, and is not comprehensive,” she said in a prepared statement. “It leaves regulators, users, and the public in the dark about the true scale of potential harm posed by illegal products sold on Temu. Now it is time for Temu to comply with the law.”
Temu has until the end of August to submit an “action plan” to remedy the problem. It could be hit with additional daily, weekly or monthly fines if it fails to comply.
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