The European Central Bank (ECB) hiked interest rates for the second time this year on Thursday, meeting expectations as renewed tensions in the Middle East sent energy prices soaring again, threatening to push inflation higher.

The central bank for the 21 eurozone nations lifted its benchmark rate a quarter percentage point to 2.5%, its highest level since March last year.

It was the ECB’s second increase this year after policymakers lifted borrowing costs in June for the first time since 2023 in response to the energy shock triggered by the U.S. war with Iran.

“The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,” the ECB said in a statement.

“The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth,” it added.

The central bank kept its inflation forecast for this year unchanged at 3% but raised it slightly for next year, to 2.5%.

It also slightly raised its growth forecasts for this year, to 0.9% from 0.8%, and for next year to 1.4% from 1.2%.

Fears of higher inflation, which hit 3.3% in August, above the ECB’s 2%, are being fanned by a surge in global energy prices.

The Brent international oil benchmark has climbed back above $100 a barrel this week, while natural gas prices, a key energy cost for Europe, reached their highest level in more than three years.

The surge is being driven by an escalation in the U.S.-Iran conflict as well as a flare-up in fighting between Saudi Arabia and Yemeni Houthi rebels, dimming prospects of Gulf energy shipments returning to normal.

‘Inflation worsening’

For households in the euro area, another rate hike means pricier mortgages, consumer credit and other loans.

The central bank, meeting this time in Berlin on one of its regular trips away from its Frankfurt headquarters, has faced criticism in some quarters for trying to tackle an energy supply shock with tighter monetary policy.

Rate hikes aim to slow inflation by dampening demand from consumers and businesses, but critics say they can do little to tackle the root cause of the current burst in price rises, a shortage of energy.

And so far, there has been little sign of eurozone inflation seeping more broadly through to the economy via higher costs for food, goods or services.

Some economists say the ECB is worried about a repeat of 2022, when the central bank was criticized for raising rates too slowly in response to the inflation surge following Russia’s invasion of Ukraine.

Still, some analysts back more tightening and say the current energy surge might prompt the ECB to hike further.

“The inflation outlook has worsened over the summer,” said Sylvain Broyer, chief economist for Europe, Middle East and Africa at S&P.

“Supply shocks are not only multiplying, but it is increasingly likely that demand is also adding to inflation,” he said.

“In that context, the ECB may need to move into restrictive territory and cannot rule out further rate hikes at this stage.”

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Türkiye’s industrial production decreased on both an annual and a monthly basis in July, with the year-over-year drop at 0.3%, official data showed on Thursday.

Monthly, the output fell 1%, according to the data from the Turkish Statistical Institute (TurkStat).

Among the subsectors of industry, the mining and quarrying index shrank 3.8% annually in July 2026, the institute said.

The electricity, gas, steam and air conditioning supply index dropped 5.6% compared with the same month of the previous year.

In contrast, the manufacturing index posted an annual increase of 0.3% in July 2026.

On a monthly basis, all three major industrial subsectors recorded declines in July 2026.

The mining and quarrying index contracted 2.2% month-over-month, while the electricity, gas, steam and air conditioning supply index also posted a 2.2% drop.

The manufacturing index decreased 0.8% compared with the previous month.

Looking at the main industrial groupings, high-technology manufacturing registered the sharpest annual decline at 8.5% in July 2026.

High-technology manufacturing also posted the largest monthly decrease, shrinking 5.8% compared with June 2026.

Meanwhile, durable consumer goods recorded the highest monthly growth among the main industrial groupings, rising 3.3% in July 2026.

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Türkiye’s commitment to price stability remains “very strong,” Treasury and Finance Minister Mehmet Şimşek said, pledging that Ankara would maintain its economic program and deliver disinflation despite difficult global and geopolitical conditions.

Speaking to international media, Şimşek evaluated economic goals and the current picture days after the government unveiled a new road map for the 2027-2029 period.

“The only criticism we would accept is that we have been ambitious in our targets. We have, and there is, of course, a cost associated with that. But the commitment is there,” he said.

According to the 2027-2029 Medium-Term Program (MTP), the authorities have lifted their expectations for year-end inflation, mainly due to war-related effects, projecting it to decline to 9% by the end of the program.

Inflation is forecasted to come in at 28.4% this year, 21% in 2027 and 13.5% in 2028, before falling to single digits.

Annual inflation rate eased to 31.51% in August from 31.75% in July, according to official data.

Şimşek joined Vice President Cevdet Yılmaz and the head of the Presidency’s Strategy and Budget Office, Ibrahim Şenel, at the Presidential Complex for an international media meeting on MTP.

“We will stay the course and deliver. What is important is the direction of travel,” he said, according to remarks published late Wednesday.

Combating illicit finance

At the same time, the minister noted that Türkiye maintains close cooperation and effective information-sharing with its partners and allies, particularly the U.S.

“Türkiye is committed to combating terrorist financing, any form of illicit financial activity, money laundering, sanctions evasion and all forms of illicit trade,” he said.

All companies operating in Türkiye must fully comply with national regulations and avoid sanctions, while competent authorities are assessing recent U.S. Treasury announcements and allegations within the rule of law, he added.

“Our message to both the financial sector and other actors in the economy is that all companies have to conduct their activities in full compliance with national regulations,” Şimşek said in apparent reference to Iran-related sanctions.

The U.S. Treasury Department has recently moved with a campaign to increase economic pressure on Iran.

Well-established framework for Iran gas payments

Şimşek also said Türkiye’s gas contracts with neighbors such as Iran and Russia are long-term agreements, some of which have been in place for decades.

“We do not pay Iran directly for the natural gas. We have an understanding, again, with the U.S. The money sits in a very tightly regulated account, and payments can only be made for items such as food and medicine,” he said.

“There is a well-established framework governing how natural gas payments are managed.”

Iran accounts for a relatively small share of Türkiye’s gas imports, while the country has invested heavily in alternative supplies and storage, Şimşek said, noting that the U.S. is now one of Türkiye’s leading liquefied natural gas (LNG) suppliers.

Return to free float ‘desirable’

Moreover, Şimşek said that returning to a free-floating exchange rate is desirable because it acts as a shock absorber, but lower inflation, better-anchored inflation expectations and two-way foreign-exchange flows are needed first.

“This is not about being afraid of returning to a free float. It is about getting the conditions right,” he said, calling speculation over an imminent change “baseless.”

He stressed that daily exchange-rate policy is conducted by the central bank and that the Medium-Term Program assumes a neutral real exchange rate.

“We are not in the business of making bets on the exchange rate,” he added.

Price stability

Şimşek also rejected claims that the 2027 inflation target was revised upward to permit looser monetary policy.

“The idea that the inflation target for 2027 was revised upward to loosen monetary policy never came onto our agenda,” he said.

He said the program reflects significant changes in energy, agricultural and other commodity prices, as well as the difficult geopolitical environment.

“When the facts change, of course, forecasts change,” he said.

Housing and selective credit support

Şimşek also said Türkiye has invested $104 billion in earthquake reconstruction, with 621,000 housing units delivered or due to be delivered this year.

Rent inflation in earthquake-hit provinces is around 20%, compared with 50%-60% elsewhere, demonstrating that “supply-side measures make a huge difference,” he said.

The government also plans 750,000 state-funded social housing units to ease housing and rental costs.

Şimşek said selective credit programs support manufacturers, farmers, small businesses and technology investments, helping preserve employment and create jobs.

“The ultimate goal of this program is a sustainable high growth rate and better income distribution. So, basically, better standards of living for Turkish people,” he said.

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Global trade in goods has grown stronger since June despite geopolitical tensions ​and policy-related uncertainties, the World Trade Organization (WTO) ​said on Wednesday, ⁠pointing to the resilience in merchandise flows even as risks remain elevated.

The September reading of the WTO’s barometer tracking merchandise trade growth was 102, an improvement from the June barometer of 101.7, with growth remaining above trend.

The WTO publishes its Goods Trade Barometer four times a year. It covers export orders, air freight, container shipping, automotive products, raw materials and electronic components.

Readings above 100 indicate growth above the ⁠baseline ⁠trend of 100, while figures below 100 point to below-trend growth.

The Geneva-based trade body said the strengthening came despite uncertainty linked to geopolitical tensions and trade policy developments.

In March, the WTO forecast that growth in world trade in goods would slow down markedly to 1.9% this year from 4.6% in 2025, and could decelerate even more ⁠if the U.S. war with Iran continues to push up energy prices and disrupt global transport.

U.S. President Donald Trump has imposed sweeping ​tariffs on global trading partners, while shipping through the key Strait of ​Hormuz, through which a fifth of global oil supplies used to transit has been severely disrupted ⁠by ‌conflict in ‌the Middle East.

However, strong demand for electronic ⁠components tied to investment in AI and ‌digital infrastructure was helping offset the negative effects from those factors, ​the WTO report said.

Trade ⁠growth remains uneven across sectors and regions, ⁠and the WTO warned that geopolitical and policy-related risks continue ⁠to cloud the ​outlook due to ongoing disruption to supply chains, shipping routes and transport costs.

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The International Monetary Fund (IMF) has pushed borrowing countries to make bigger austerity cuts over the past decade, charity Oxfam said early Thursday, urging for alternatives to such measures.

“These cuts undermine vital spending on public services – from health care to education and housing – that protect low-income communities,” Oxfam warned in a statement.

It said the median annual austerity cuts required by the IMF rose from %0.21 of GDP between 2012 and 2017 to %0.85 of GDP between 2018 and 2025.

At the same time, the fund also weakened protections to social spending in its loan programs, Oxfam added.

One concern is that the IMF could “return to 1980s-style structural adjustment” by demanding large public spending cuts from governments at the start of a program, instead of phasing in reductions over years, Oxfam said.

“Frontloading austerity is like asking countries to swallow a whole bottle of poison that we already know is harmful in small doses,” said Nabil Abdo, Oxfam’s international senior policy advisor, in a statement.

The organization urged the IMF to ensure its programs do not worsen inequality, and called for alternatives to austerity.

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Brent crude prices surged past $100 a barrel Wednesday for the first time since July 24, as escalating conflict in the Middle East fueled worries about energy-driven inflation and sent global stocks ⁠tumbling ahead of several major central bank decisions.

Brent crude futures were up $2.88, or 2.94%, at $100.80 a barrel by 1210 GMT, after earlier touching $100.95. U.S. West Texas Intermediate crude was up $2.57, or 2.76%, at $95.60 a barrel, its highest level since early June.

Since ​the Iran war began on Feb. 28, Brent has surged as high as $126.41 a barrel, a ​peak ⁠reached on April 30.

“The move toward and back above $100 Brent is reflecting a market that increasingly has to change its view on how long the Middle East crisis will continue to curb supply from the region,” said Ole Hansen, head of commodity strategy at Saxo Bank.

This week, attacks by Iran-backed Houthis on Saudi energy facilities set oil installations ablaze, threatening a significant expansion of the conflict.

The attacks also threaten crude shipments via the Red Sea, which has been a key alternative route to the crucial Strait of Hormuz, where oil flows have been severely curtailed.

In a sharp escalation of the six-month-old war, U.S. forces also hit multiple Iranian oil tankers and Iran targeted a U.S. base in Jordan and attacked ships.

Supply risks mount

“Market participants appear to be pricing in a more prolonged conflict in the Middle East as well as the risk that the latest escalation in military strikes disrupts oil flows from the Middle East,” said Hamad Hussain, senior climate and commodities economist at Capital Economics.

“The key risk is whether ⁠the ⁠recent attacks on oil tankers lead to fewer ship-to-ship transfers taking place in the Gulf of Oman, which have so far played a key role in providing oil to global markets and keeping a lid on prices.”

A tanker carrying about 2 million barrels of Iraqi fuel oil was struck by a drone in Iraqi territorial waters Wednesday, port officials said, while UKMTO, a British navy-linked agency, reported that several merchant vessels in the Gulf had been hit by disabling fire overnight.

In the week before a resumption in fighting on Aug. 30, roughly 8 million to 9 million barrels per day had flowed through Hormuz, double the previous week’s volume, according to Rystad Energy’s Chief Economist Claudio Galimberti. More recently, flows have fallen below 2 million bpd.

Fuels, physical crude oil already above $100

In the physical crude oil market, the dated ⁠Brent oil benchmark, against which roughly two-thirds of supply is priced, has been above $100 per barrel since Sept. 3, according to LSEG data.

Physical oil markets react quickly to supply disruptions as buyers need to go into the market to seek alternative cargoes.

Meanwhile, consumers have been paying over $100 for their oil in the form of refined fuels such as ​gasoline and diesel for most of this year, as conflicts created a global refining crunch which sent fuel prices soaring even relative to crude.

European ​diesel futures were trading at around $199 per barrel Wednesday, and have not been below $100 per barrel since the start of the Iran war.

Diesel refining margins, or the fuel’s premium to crude, have been at all-time highs since August as fuel shortages gripped markets, ⁠touching $78.90 per barrel ‌on Sept. 1.

By contrast, ‌the margin averaged $21 per barrel in 2025 and $19.52 in 2024.

“We’re in a situation where actually, ⁠if we had normal refining margins, crude would be the equivalent of about $150,” said Alan Gelder, ‌senior vice-president for refining, chemicals and oil markets at Wood Mackenzie.

Refining is tight globally because of lower exports from the Strait of Hormuz and Russia, and restrained throughputs in Asia, he ​added.

European gasoline has also been above $100 since March, ⁠and its premium to crude neared all-time highs of above $60 per barrel at the start of the month.

In ⁠the U.S., consumers faced record gasoline prices over the Labor Day holiday weekend, while diesel prices hit all-time highs last week as supply concerns ⁠continued to tighten fuel markets.

“It complicates ​the picture because central banks around the world are trying to grapple with high inflation,” said Nitesh Shah, commodity strategist at WisdomTree.

Stocks under pressure

Stock markets across the globe were also under pressure Wednesday, as the latest surge in energy prices drives concerns that higher inflation will prompt central banks to keep monetary policy tighter for longer.

U.S. stock index futures fell about half a percent, setting Wall Street indexes up for a third consecutive day of losses.

The pan-European STOXX 600 index dropped 1.5% by 1123 GMT, on course for its biggest percentage drop in two months, with economically sensitive banking and industrial stocks among the top decliners.

“$100 is a round number, a psychological number, but the break-even point of oil prices for the developed markets is much higher,” said Societe Generale multi-asset strategist Manish Kabra. “We think crude needs to hit $150 to create a major drawback in demand cycle.”

However, Kabra cautioned that if price margins for refined products did not decline, “then diesel prices go up and there tends ⁠to ⁠be a trickle-down impact on inflation and services.”

U.S. inflation test, rate hike bets

The 10-year U.S. Treasury yield, the benchmark for global borrowing costs, traded at 4.808%. It touched ​a near three-year high of 4.818% last week as traders ramped up expectations of a tighter monetary policy.

U.S. producer and ​consumer price reports, set to be released later this week, are seen as a real test for those bets, with policymakers looking for further evidence that inflation pressures are continuing to cool.

Traders assign close to 60% ⁠odds for ‌a quarter-point hike ‌or a hold from the U.S. Federal Reserve (Fed) next week, while ⁠being all but certain of a quarter-point increase from the Bank of Japan (BOJ) two ‌days later.

The yen strengthened toward the nearly seven-month high touched against the dollar Tuesday as traders exited short positions in the ⁠Japanese currency. Expectations are building for faster BOJ hikes and a potential rush of repatriation of Japanese capital.

The euro edged higher ahead of the European Central Bank’s (ECB) policy decision Thursday, with markets widely expecting a hike amid inflationary pressures from the Iran war. The currency rose to a more than one-week high of $1.16493.

Both Japan and the eurozone are energy importers.

Sterling edged 0.1% higher at $1.3558. The Bank of England (BoE) is due to ⁠announce its latest policy decision ​next Thursday, with economists predicting the key rate will be on hold for the remainder of this year.

Gold gained 1.1% to around $4,403 an ounce.