Central Bank of the Republic of Türkiye (CBRT) said on Tuesday that the pricing pressures due to the Iran war are weighing on disinflation, but do not alter policy commitment.

The conflict is dealing a huge shock to the global economy after it triggered the closure of the Strait of Hormuz, the key waterway through which around 20% of the world’s oil formerly passed.

The surge in energy prices poses a challenge for import-heavy economies like Türkiye, where inflation rose to 32.37% in April, the highest measure since October 2025.

“We are feeling the effects of the war, especially in energy and transportation service prices. In April, we also clearly saw the effects of this situation on inflation,” CBRT Governor Fatih Karahan told the Parliament’s Planning and Budget Commission.

“We think that the energy-related impacts will continue in the short term.”

Annual energy inflation rose by 19 percentage points over the last two months, Karahan said.

He added that the duration of geopolitical tensions remained a critical risk factor for the inflation outlook.

“The effects on the medium-term inflation outlook will be shaped by our monetary policy stance, and we will take these factors into account in our upcoming policy decisions,” he said.

The jump in costs and the resulting inflationary pressures have curbed central banks’ room to cut interest rates.

CBRT flagged rising risks in its monetary policy committee statement last month, when it kept its benchmark policy rate steady, saying it was closely monitoring fallout from the Iran war and potential second-round effects.

Before the conflict began shifting expectations, the CBRT had been expected to continue a rate-cutting cycle that began in late 2024.

Although inflation has fallen significantly compared with its peak reached in May 2024, Karahan said price growth remains elevated.

He also said inflation expectations had not declined to the extent desired and remained above the central bank’s forecasts.

In February, the bank raised its year‑end inflation forecast range by two percentage points to 15%-21%, while keeping its interim 16% target unchanged.

It is due to present its second inflation report of the year next week. Analysts say it will likely feature a revision of both the target and forecasts.

Karahan reiterated that the central bank would continue using all monetary policy tools in line with its primary objective of price stability.

Looking at growth, Karahan said global economic expansion was expected to slow markedly in 2026, likely weakening external demand for Türkiye.

On credit trends, he said commercial loan growth had accelerated somewhat over the last two quarters, with the recent increase in overall lending mainly driven by business loans.

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Türkiye expects a deal volume of around $8 billion to be signed on the sidelines of one of the most significant international defense and aerospace exhibitions that kicked off on Tuesday, according to top officials.

SAHA EXPO serves as a primary platform for showcasing Türkiye’s domestic defense capabilities and has, over the years, seen billions of dollars added to the country’s defense exports.

“During this fair, we expect contracts worth around $8 billion to be signed,” Haluk Görgün, head of the Defense Industries Presidency (SSB), said. That would mark an increase from $6.2 billion sealed during the last edition.

Türkiye has injected billions of dollars to transform from a nation heavily reliant on equipment from abroad to one that is a major exporter and where homegrown systems now meet almost all of its defense industry needs.

For much of the past two decades, Ankara has expressed frustration over its Western allies’ failure to provide adequate defense systems against missile threats despite Türkiye being a major NATO member.

The country currently exports more than 230 defense systems to 185 countries, Görgün said, adding that repeated demand shows satisfaction with Turkish products and services.

Türkiye’s defense exports rose about 48% year-over-year in 2025 to a record of more than $10 billion. The goal for 2028 is to lift the full-year figure to $11 billion, placing Türkiye among the world’s top 10 biggest defense exporters, according to officials.

Contracts signed in the first four months of this year approached $7 billion, according to Görgün.

‘Partner Europe needs is Türkiye’

Wars and geopolitical tensions lifted global military spending to nearly $2.9 trillion in 2025, a 2.9% year-over-year increase, marking an 11th consecutive year of growth, according to the Stockholm International Peace Research Institute (SIPRI).

That brought the growth over the past decade to 41% and took spending as a share of GDP ​to 2.5% – its highest level since 2009.

The main ⁠contributor to higher global spending was a 14% rise in Europe to $864 billion, as concerns over the reliability of the U.S. as a NATO partner contributed to higher budgets.

Türkiye increased its expenditure by 7.2% from 2024 to $30 billion, making it the 18th biggest spender in the world.

The figure accounted for 1.9% of Türkiye’s GDP, and the growth rate lifted the increase over the past decade to 94%.

Addressing the fair in Istanbul, Industry and Technology Minister Mehmet Fatih Kacır said Türkiye is well-positioned to meet Europe’s growing defense needs.

Europe remains around 80% dependent on foreign products while accelerating efforts to bolster its defense capacity, Kacır noted.

“The solution partner Europe needs is Türkiye,” he noted.

“Our sector is in a position to provide the solutions required by the European defense ecosystem with a broad portfolio of high-technology, cost-effective products that have proven their game-changing role in the field.”

He warned that excluding Türkiye from European defense programs would leave the continent facing “irreversible strategic losses.”

“Our NATO-standard production infrastructure allows Turkish defense products to be rapidly integrated into allied platforms,” he said.

2 out of 3 drones are Türkiye-made

Türkiye has built an integrated defense ecosystem covering research and development, testing infrastructure, serial production capabilities and human capital, according to Kacır.

He also said Turkish firms now produce two out of every three military drones sold globally and that Türkiye is among 10 countries capable of designing, developing and producing their own warships.

Kacır cited platforms including the Kaan fifth-generation fighter jet, Bayraktar TB3 drone, Gökdoğan and Bozdoğan air-to-air missiles, the Bayraktar Kızılelma unmanned fighter aircraft, Altay tank, Hürjet trainer jet and elements of the Steel Dome air defense architecture as examples of Türkiye’s defense progress.

The fair, organized by SAHA Istanbul, Türkiye’s and Europe’s largest defense, aviation and space industry cluster, was launched in 2018 when it hosted 180 companies from 12 countries.

The trade show has since expanded to host more than 120 countries and over 100,000 visitors.

This year’s edition will run through Saturday and be attended by nearly 200 delegations, Görgün said.

Haluk Bayraktar, chair of SAHA Istanbul and CEO of drone powerhouse Baykar, described the expo as more than a trade fair that he says has become a meeting point for technology leaders shaping future industries.

He said this year’s event was hosting 263 international companies from more than 120 countries. A total of 203 new products will be introduced, and 164 signing ceremonies are scheduled to be held during the fair.

Bayraktar said the world was moving from trade wars toward technological sovereignty struggles, with protectionism, supply chain disruptions and energy market volatility exposing vulnerabilities in industrial systems.

“In this new era, national production capacity is no longer just an economic choice but a vital resilience test and strategic necessity for states,” he said.

Rewriting military doctrines

Defense Minister Yaşar Güler said Türkiye had transformed from a country largely dependent on foreign suppliers until the 1980s into one capable of designing, producing and exporting its own defense systems.

He said Turkish unmanned aerial vehicles represented the country’s most significant defense breakthrough.

“The real revolution of the Turkish defense industry has been achieved with our drones, which have rewritten military doctrines worldwide,” Güler said.

He added that Türkiye’s unmanned systems had demonstrated the capabilities of Turkish engineering globally through artificial intelligence integration, precision strike capacity and high-altitude performance.

Debut of new technologies

A wide range of high-tech products are making their debuts at SAHA 2026.

They included Türkiye’s first intercontinental ballistic missile (ICBM). Named “Yıldırımhan,” the missile is said to feature a range of 6,000 kilometers (3,728 miles) and a speed of Mach 9 to Mach 25.

Baykar is showcasing Mızrak, a smart loitering munition featuring a range of more than 1,000 kilometers and AI-supported autonomous capabilities.

Baykar’s K2 Kamikaze drone and Sivrisinek (Mosquito) loitering munition are also making their debuts.

Another defense giant, Aselsan, is presenting five new products and six upgraded versions of existing platforms.

The Alka-Kaplan Hybrid Directed Energy Weapon System Platform, developed through cooperation between Roketsan and FNSS and widely known as a “laser weapon,” will also appear at the fair with additional capabilities.

Major weapons manufacturer and defense contractor Roketsan’s newest and most advanced technology products will also be introduced, while STM will display air and naval systems developed for the needs of the modern battlefield for the first time.

Turkish technology company Pasifik Teknoloji announced a major agreement to sell tens of thousands of its FPV kamikaze drones to an unnamed foreign country, marking its first defense export deal that sent its shares sharply higher on Tuesday.

In a regulatory filing late on Monday, the company said it had signed an agreement with a technology and defense institution from a “friendly and allied” country.

Under the deal, Pasifik Teknoloji will export 100,000 FPV kamikaze drone systems branded Merküt.

The agreement also includes 10 Alpin unmanned helicopters, 25 Dumrul mini unmanned helicopters, 500 Deli tactical kamikaze systems and 500 Korgan autonomous ground support and surveillance units.

The company said the agreement marks its first export in the defense industry.

Pasifik Teknoloji shares rose 9.96%, hitting the daily upper trading limit after the announcement.

In a note, brokerage firm Global Menkul Değerler said the deal was viewed positively as it represents the company’s first defense export and could strengthen its positioning in international markets.

Financial details of the agreement and the identity of the buyer country were not disclosed.

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A Turkish firm unveiled a long-range kamikaze unmanned aerial vehicle for the first time on Tuesday, bringing a national capability to long-range strike UAV systems.

Named Kuzgun, the drone has been developed for deep-strike missions and features a range of more than 1,000 kilometers (621 miles), its manufacturer STM said.

It also boasts a high-explosive warhead designed to deliver strong effects against strategic targets.

The platform made its debut on the sidelines of the SAHA 2026 defense trade show.

STM General Manager Özgür Güleryüz said global and regional crises have once again shown the decisive role of long-range and cost-effective strike systems on the battlefield.

“With Kuzgun, our long-range kamikaze UAV system developed for this need, we aim to take our country’s strategic deterrence to the next level,” Güleryüz said.

He said the system will be capable of autonomously neutralizing critical targets, from command centers to air defense and radar elements.

“Kuzgun, equipped with our national software, electronic warfare-resistant navigation system, and low-altitude flight capability, will operate with the goal of full precision even in the most challenging geographies,” he added.

Named after the raven, a bird known for sharp intelligence, high observation ability, and strategic speed, the drone is designed as a quiet but effective force multiplier on the modern battlefield.

The system was developed for cross-border operations and strikes against critical targets behind enemy lines, while its aerodynamic structure provides high survivability, according to STM.

Kuzgun can be launched with rocket-assisted takeoff from mobile land platforms or fixed launchers without the need for runway infrastructure, increasing operational flexibility.

With an endurance of more than six hours, the system can conduct rapid and effective attacks against distant targets, the company said.

Optimized for conflict zones with intense GNSS jamming, Kuzgun stands out for its jamming-resistant navigation architecture.

The system can carry out fully autonomous flight according to predefined route and target information and reach its target with GNSS-supported precision coordinate-dive capability.

Despite its 200-kilogram total weight, the drone offers high speed and is expected to become an important element in strategic operations with its high-destructive-power munition.

According to STM, Kuzgun can fly for six hours, with a takeoff weight of 20 kilograms and an operational altitude of 3,500 meters above mean sea level.

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Indonesia’s economy grew 5.6% on an annual basis in the first quarter of 2026, the national statistics agency said Tuesday, exceeding the government’s own forecast despite pressures of the Middle East war.

The reading surpassed the 5.4% recorded in the final three months of 2025, Statistics Indonesia (BPS) head Amalia Adininggar Widyasanti told reporters in Jakarta.

Household expenditure was the biggest contributor to the growth, Amalia added.

The government of President Prabowo Subianto is aiming to raise the Southeast Asian economy’s growth rate from 5.1% last year to 8% by 2029, powered by high public spending.

Amalia said government expenditure grew more than 21% in the first quarter compared to a year earlier.

Last month, Economy Minister Airlangga Hartarto said Indonesia could outlast the impacts of Middle East war-fuelled oil price hikes for up to 10 months without cutting fuel subsidies.

Indonesia is an oil producer but a net importer, and heavily subsidises fuel consumed domestically.

Between a fifth and a quarter of its oil came from the Middle East, but Jakarta has since made an oil deal with Russia and is looking at other alternatives in Africa, the United States and Venezuela.

Every dollar increase in the global oil price adds a burden of about 6.8 billion rupiah (around $400 million) to the state budget.

Jakarta’s 2026 fuel subsidy calculation had been premised on a global oil price of $70 per barrel, which was pushed past $100 a barrel by the U.S.-Israeli war on Iran and Tehran’s response.

The subsidy was also based on an exchange rate of 16,500 rupiah to the dollar, but the currency has since slipped beyond the 17,400 rupiah mark.

Jakarta’s insistence on maintaining the fuel subsidy was feeding fears the government may decide to exceed its 3.0% fiscal deficit ceiling, said Leather, further undermining confidence in the rupiah.

The central bank said Tuesday it would “continue to be present in the market… to maintain the stability of the rupiah’s exchange rate in line with its fundamental value.”

On Monday, BPS said year-over-year inflation for April came in at 2.42%, the lowest so far this year.

The World Bank last month lowered Indonesia’s 2026 growth projection to 4.7% from the 4.8% it had forecast last October.

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EU Energy Commissioner Dan Jorgensen warned on Tuesday of the rising energy costs for the bloc triggered by the war in Iran and the subsequent blockade of the Strait of Hormuz.

“Since the outbreak of the conflict in the Middle East, the European Union member states have already spent over 30 billion euros (more than $35 billion) more on fossil fuel imports without receiving any additional supply,” Jorgensen told journalists in Brussels on Tuesday.

“The world is facing what is arguably the most severe energy crisis ever, one that is testing the resilience of our economies, our societies, and our partnerships,” he said.

Roughly a fifth of the world’s traded oil and liquefied gas normally passes through the Strait of Hormuz.

Since the start of U.S.-Israeli attacks on Iran, Tehran has effectively halted shipping through the chokepoint through threats and attacks, while Washington has imposed a naval blockade on vessels entering or leaving Iranian ports.

In addition, energy production facilities in several Gulf countries have been damaged by Iranian strikes in the past months.

European Commission President Ursula von der Leyen recently said the conflict and the Hormuz closure is costing the EU almost 500 million euros a day, raising prices at the pumps and fears of a jet fuel shortage within weeks.

Jorgensen warned of the long-term consequences of the damage, saying gas production in the region “will take probably even years to remedy” while oil production is expected to recover quicker.

The EU commissioner said that the bloc was preparing for potential fuel supply issues. “We are not there yet, but it can happen, especially on jet fuel,” he said.

The European Commission is expected to present guidelines to airlines later this week.

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