Economy
Turkish central bank keeps rates steady, monitors conflict impact
The Turkish central bank kept its key policy rate unchanged at 37% on Thursday, holding steady for a third straight meeting as it monitors the inflation impact of the Iran war.
The Central Bank of the Republic of Türkiye (CBRT) also cited that the underlying trend of inflation “decreased slightly in May,” while also suggesting that the first quarter data points “to a slowdown in economic activity and leading indicators suggest a continued weak course in domestic demand.”
“The underlying trend of inflation, which increased in April due in part to higher energy prices, following its rise in the first months of the year, decreased slightly in May,” the bank said following its closely watched Monetary Policy Committee (MPC) meeting.
However, the bank warned that energy prices “remain volatile and elevated,” amid geopolitical developments and the resulting uncertainties.
Oil and gas prices have surged significantly since the start of the Iran conflict, with Brent crude briefly hitting peaks of nearly $120 a barrel. Following easing in recent weeks, the prices have spiked again in recent days amid the renewed risk of attacks between the U.S. and Iran.
Analysts were widely expecting the bank to keep the cautious approach and leave rates on hold this week. A smaller number of economists were forecasting a hike. In a Reuters poll, 12 of the 14 economists surveyed predicted no change to borrowing costs, while two forecast a rate hike.
The committee has also kept the central bank’s overnight lending rate and the overnight borrowing rate at 40% and 35.5%, respectively. The bank uses the rate corridor to adjust the cost of funding to the market when necessary without changing the benchmark rate.
Annual inflation in Türkiye edged up to 32.6% in May from 32.4% in April, official data showed last week.
Since the war started at the end of February, the CBRT has halted an easing cycle that began in late 2024 and taken other liquidity steps that pushed the lira overnight rate up to the 40% limit.
Impact ‘closely monitored’
The war-related surge in energy prices has weighed on import-heavy economies like Türkiye, although authorities have introduced measures to cushion its impact on consumers, mainly through a so-called “sliding scale” system that limited fuel prices.
In its quarterly inflation report in May, the central bank raised its end-2026 interim inflation target to 24% from 16%, forecasting that the short-term inflationary effects of the Iran war would remain “pronounced.”
“The impact of geopolitical developments on the inflation outlook through the cost channel, economic activity and expectations is closely monitored,” the bank also said.
“The tight monetary policy stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels,” it added.
It also reiterated that the committee “will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets.”
The bank also underscored its meeting-to-meeting approach and “focus on inflation outlook.”
The Turkish lira held steady at 46.1550 against the dollar after the announcement, while the main Istanbul share index was slightly higher.
Inflation expectations among market participants in Türkiye rose slightly for the end of the year but dropped for the 12-month horizon, a survey showed on Friday.
According to the Central Bank of the Republic of Türkiye’s (CBRT) survey for August, year-end consumer price inflation is expected to reach 29.43%, up from 29.21% in the previous survey.
The 12-month inflation forecast declined to 23.69% from 23.95%, indicating that participants continue to expect disinflation over the coming year despite a slightly higher projection for the end of 2026.
Forecasts for inflation in 24 months time, however, edged up to 18.03% from 17.83%, the survey showed.
Türkiye’s annual consumer price inflation eased to 31.75% in July 2026, down from 32.11% in June.
On Thursday, the CBRT adjusted its end-2026 inflation forecast upward to 28% from 26% mainly due to energy and food price pressures. But it left its interim target unchanged at 24%.
The bank also kept its interim inflation targets for end-2027 and end-2028 at 15% and 9%, respectively.
Friday’s survey also showed a weaker outlook for the Turkish lira. Participants raised their year-end U.S. dollar/lira forecast to 51.66 from 51.55, while the 12-month exchange rate expectation increased to 57.43 from 56.69.
Growth expectations were broadly unchanged. Respondents maintained their 2026 GDP growth forecast at 3.1%, while trimming their projection for the following year to 4% from 4.1%.
The survey continued to point to expectations of gradual monetary easing by the central bank.
Participants expect the CBRT to keep its policy rate at 37% at its next Monetary Policy Committee (MPC) meeting. They see the one-week repo rate declining to 36.13% at the following meeting and 35.25% at the third meeting.
Respondents now expect the policy rate to stand at 29.59% in 12 months time, slightly higher than in the previous survey.
Higher oil prices that have weighed on inflation expectations have prompted the CBRT to keep its one-week repo rate unchanged for four straight months.
Azerbaijan overtook Russia to become Türkiye’s largest pipeline natural gas supplier in June, according to official data.
Türkiye imported around 1.01 billion cubic meters (bcm) of pipeline gas from Azerbaijan in June, data compiled from the Energy Market Regulatory Authority (EPDK) showed.
Iran was the second-largest supplier, with 883 million cubic meters (mcm), while Russia ranked third with 882 mcm.
Russia had been Türkiye’s largest pipeline gas supplier in each of the first five months of 2026. Azerbaijan, however, has ranked as Türkiye’s top supplier for June since 2023.
Azerbaijan supplied 744 mcm of pipeline gas to Türkiye in June 2023, around 997 mcm in June 2024 and 1.02 bcm in the same month of 2025.
The EPDK data showed Türkiye’s total natural gas imports fell 6.19% year-over-year to around 3.06 bcm in June.
Pipeline deliveries accounted for about 2.78 bcm of total imports, while liquefied natural gas (LNG) imports stood at 282 mcm. All of Türkiye’s LNG imports in June came from Algeria.
Despite the decline in imports, Türkiye’s natural gas consumption rose 4.59% year-over-year to approximately 2.83 bcm.
Industrial consumption accounted for around 1.09 bcm, while gas use in the transformation and conversion sector, which includes electricity generation, reached 594 mcm. Household consumption stood at 710 mcm.
Türkiye’s natural gas storage volume stood at around 5.27 bcm at the end of June. Underground storage facilities held approximately 4.97 bcm, while LNG terminals accounted for the remaining 296 mcm.
Severe droughts and record-low river levels are disrupting Eastern European nuclear generation, forcing Romania to shut down its last working reactor and straining Hungary’s capacity to keep its plant online, sparking broader debate on how to adapt atomic energy to an increasingly extreme climate.
Reliance on river water for cooling nuclear reactors has long been an issue and has repeatedly led to reduced power output in the summer months, especially in France, which is more dependent on nuclear power than any other country.
But the extremity of drought and heat this year in Europe, which has experienced more warming than any other continent, has added urgency to a debate about adaptation.
Hungary was forced to cut its 2-gigawatt Paks nuclear plant’s output to just over 10% earlier this month, barely escaping a full shutdown for the first time in 44 years. It is now operating at 25% of its capacity.
Romania’s state-owned Nuclearelectrica shut down its last working reactor on Thursday after efforts to divert cooling water to the plant were not enough.
Part of solution but also problem
Nuclear power plants have the advantage of generating baseload power without carbon emissions, meaning they have a role in avoiding fossil fuel burning and tackling climate change.
Romania and Hungary are both committed to expanding their nuclear production as a source of ample, domestic power, but that means finding a way to cool reactors that depends less on river water levels.
Diana Urge-Vorsatz, a professor at the Central European University in Vienna, said scientific modelling showed the trend was for Central and Eastern Europe to become drier.
“This is not only due to less rains, but because the soil moisture and groundwater levels have dropped over the past years, and less precipitation and more heat waves exacerbate soil drying,” she said.
At a conference last year of the Hungarian Hydrological Society, water engineers already warned that “flow patterns may become more extreme and volatile” on the Danube, one of Europe’s longest rivers.
Now governments are seeking solutions under pressure as the emergency output cuts at Hungary’s and Romania’s nuclear plants have forced them to ask companies and households to cut power consumption.
Among the measures proposed, Hungarian Prime Minister Peter Magyar said on Wednesday his government would build what he referred to as a riverbed sill – a submerged, dam-like structure – to raise water levels. Also, two barges could be sunk on Friday to lift water levels to try to avert a shutdown, as the river is expected to shrink further in the coming days.
The country is also reviewing the designs for the planned Paks 2 nuclear expansion that rely on the Danube for cooling. The former government of Viktor Orban selected Russia’s Rosatom for the work without a tender in 2014.
Different technology but water still required
Romania’s Nuclearelectrica operates two 706-megawatt reactors that account for a fifth of the country’s power production. They use Canadian CANDU technology that relies on heavy water, in which the hydrogen in water is replaced with a heavier isotope, to slow neutrons.
The four reactors of Hungary’s Paks plant, which generate around half of Hungary’s power, are Russian-made pressurised water reactors.
Both technologies pump water from the Danube for cooling and then release the water back into the river.
In contrast, Czech and Slovak nuclear power plants use wet cooling towers, which need less water, with the steam evaporated in the process emitted to the atmosphere.
Scientists have raised the idea of hybrid cooling that would supplement river cooling with towers.
Attila Aszodi, professor and nuclear expert at the Budapest University of Technology and Economics, said, however, it was unlikely to be economical to retrofit a cooling tower to the original Paks reactors.
“I don’t think that for the remaining 20-plus years, I mean, the remaining lifetime of the Paks 1 power plant, it would be economical to install a large cooling tower,” Aszodi told Reuters. “A new evaluation of the cooling methods available on the site is definitely necessary.”
Romania plans intervention in Danube
In neighboring Romania, the country’s only nuclear plant sits on a river branch called the Old Danube, which intersects with Bala, another branch.
In 2024, the government approved a project worth 1.02 billion lei ($225 million) to lift the riverbed of the Bala branch to manage the water flow.
The proposed solution includes moving the intersection of the branches further upstream, raising the riverbed sill on the deeper Bala arm.
The project has been delayed, and the government has given no information on when it could be completed. Asked about the impact of low Danube river levels on plans to add two more reactors, Nuclearelectrica told Reuters studies showed the Bala project would ensure that four reactors could function at full capacity.
Eugenia Gusilov, director of the Romania Energy Center think tank, agreed it was feasible, adding alternative cooling methods could be considered before works start.
“Building Units 3 and 4 still makes sense if the necessary hydrotechnical works are done,” she said.
With the U.S.-Iran war showing no sign of ending, oil traders and policymakers are grappling with a critical question: are global oil stocks enough to offset what could become the biggest supply disruption on record?
The answer is far from clear, depending not only on how much oil remains in storage, but also on how much of it can actually be released.
Disruption doesn’t get any easier
How long reserves would last can only be ascertained by figuring out the size of the current disruption.
The head of Saudi Aramco believes the world has lost 2.6 billion barrels of oil since the start of the war, making it the largest supply disruption ever in cumulative terms apart from the 1979 Iranian revolution, according to Reuters calculations.
That amounts to a massive 25 days of global consumption based on pre-war global oil demand of 103 million barrels per day.
However, China cut demand in recent months and that means the world is consuming less oil.
Most analysts believe the daily supply gap to cover demand amounts to 5 million bpd even though Aramco says the world is losing 11 million barrels of supply from the Gulf daily.
The gap might have widened in July after Ukrainian drones shut the Kazakh CPC pipeline, pumping 1.8 million bpd.
Empty after 180 days
The West’s energy watchdog, the International Energy Agency (IEA), in March announced a release of 400 million barrels from emergency reserves and says the global economy still has substantial stocks.
The IEA was created in 1974 in response to another major oil crisis – the Arab oil embargo.
IEA stocks consist of government-held stocks and commercial stocks – together standing at 1.5 billion barrels and enough to cover the current estimated supply gap of 5 million bpd for 300 days.
However, the IEA cannot order the release of commercial stocks, such as those held by refiners for operational reasons.
That leaves only 0.9 billion in government-held stocks – enough to cover the supply gap for 180 days.
The IEA said it is ready to release more if the crisis worsens.
As empty as during Reagan’s presidency
The IEA does not disclose the precise make-up of stocks.
Of its remaining government-held stocks, one-third is held in the United States.
Crude oil stocks in the U.S. Strategic Petroleum Reserve (SPR) fell to the lowest levels since January 1983, when Ronald Reagan was president.
The U.S. Government Accountability Office warned in May that SPR’s infrastructure was deteriorating fast and that a quarter of the reserves is no longer available.
This implies that over 100 million barrels have become impossible to release, according to analysts from Rapidan Energy.
If the U.S. has only 200 million barrels of accessible SPR stocks left, they can cover just 40 days of the current supply gap.
Diesel shortage
A new IEA release is unlikely as many countries have limited stocks left, said Christian Egeland from Energy Aspects.
The depletion of inventories has reduced the buffer against supply shocks, leaving the oil market vulnerable to sharp price rises, said Hamad Hussain from Capital Economics.
Global stocks of diesel and jet fuel are currently at the bottom of their five-year range, according to Morgan Stanley.
The wars damaged Middle Eastern and Russian refineries and have hit diesel and jet fuel particularly hard, said Survo Sarkar of DBS Bank.
China could withstand crisis for much longer
Total global oil stocks, including all types such as commercial stocks, the U.S. SPR, Chinese stocks and stocks on water, look fairly comfortable, according to the IEA.
But a big chunk of those are not real supply buffers as stocks on water, for example, often represent oil and fuel already sold and in transit.
China doesn’t disclose its reserves.
Energy Aspects estimates China held nearly 1.7 billion barrels of crude in July.
However, estimates between consultancies vary from 1.0 billion to 1.7 billion.
In addition, there are unknown quantities of fuel and petrochemicals held in inventories.
With a reserve of 1.7 billion, China could cover its pre-war imports through the Strait of Hormuz, about 5.5 million barrels per day, for almost a year, one of the most comfortable levels in major economies alongside Japan.
Ukraine has sent Russia an offer suggesting they both halt attacks on civilian targets in the Black Sea, a report said Thursday, after mounting strikes on vessels and ports there raised fears over global food supplies.
The offer to suspend attacks was transmitted by Kyiv via a third party, and Ukraine was still waiting for a response, Reuters said, citing a source who is familiar with the matter.
Both Russia and Ukraine, major players in the world agriculture market, have accused each other of intensified attacks on vessels used for exports.
Eu wheat pares gains after report
Kyiv was forced to turn to alternative shipment routes when many shipowners halted stops at ports in late July in the southern region of Odesa – a key hub for grain exports – wary after Russian strikes on dozens of ships.
For its part, Russia had to suspend operations at all three terminals at its Black Sea port of Novorossiysk on Wednesday and Thursday after a Ukrainian attack, and will have to cut its grain exports further.
Before the report, Deputy Russian Foreign Minister Alexander Grushko said Moscow had received no formal Black Sea cease-fire proposal.
“Recently, we have been hearing many calls for various kinds of moratoriums and truces. These ideas are being put forward through various channels, but we have not received any formal proposals,” he said, according to Russia’s state news agency TASS.
Euronext wheat pared gains in choppy trading on Thursday to come off a two-week high following the report.
Ukraine grain exports tumble
Russia has repeatedly aimed to block Ukrainian port operations and shipments that are key to Kyiv’s war-ravaged economy.
In the wake of Russia’s 2022 invasion, the United Nations and Türkiye brokered a deal allowing Ukrainian grain exports to continue to stave off a looming food crisis. In 2023, Russia refused to prolong the agreement.
After that, Ukraine established another sea route that had remained operational until the latest round of escalation. Alternatives – both rail and via the Danube – are extremely limited, Kyiv says.
On Sunday, Türkiye conveyed its concerns about attacks to Russia and Ukraine, saying both should declare a moratorium on attacks in the Black Sea.
The current de facto blockade of Black Sea ports has sent Ukrainian grain exports tumbling 76% year-over-year so far in August, with the agricultural sector warning of vast consequences for the economy should it persist.
Romania shut down its only nuclear plant Thursday, in a rare move due to drought that has caused the Danube river, whose waters cool the plant, to fall to record lows.
Much of Europe is facing a new summer heatwave amid a drought that has driven rivers to historic lows.
The Cernavoda plant, which usually generates a fifth of Romania’s electricity, has been shut down just once before, in 2003, also due to drought.
The Nuclearelectrica company had already shut one of the plant’s two 700 megawatt (MW) reactors last month, and announced Thursday that it needed to shut the second “due to the significant and ongoing drop in the water level of the River Danube.”
“We do not foresee a restart within the next 10 days,” plant director, Romeo Urjan, told Agence France-Presse (AFP).
Efforts to divert Danube flow
To avert a complete shutdown of the reactors, the nuclear company had budgeted more than two million euros ($2.3 million) to divert the Danube’s flow to maintain the cooling of the reactors, including blowing up a rock and sinking four barges filled with rocks into the river.
Alternative power sources, including wind power as well as electricity imports, are expected to ensure adequate supplies, the Energy Ministry said Wednesday.
But it also reiterated an appeal for “responsible consumption.”
It has warned that as a last resort, large industrial users would have to face restrictions in the evening hours to save electricity.
In early August, the government said carmakers Dacia and Ford would pause production in the country until Aug. 19 to help with the power deficit.
Record-low flows
Nearly two-thirds of the Danube has seen flow rates that are the lowest on record for a month of July in 34 years, according to an analysis published Monday by the European climate change observatory Copernicus.
The drought has hit nuclear power providers across Europe.
France, which uses nuclear power to generate around 70% of its electricity, recorded a more than 20% shortfall in atomic production capacity this week, a record deficit caused by outages linked to drought, extreme heat and a jellyfish invasion, according to AFP calculations based on EDF data.
In total, 13 of the 57 reactors in EDF’s nuclear fleet were affected.
The drought in Europe has been exacerbated by human-induced climate change, according to the World Weather Attribution group of scientists, who warn that the problem will worsen.
Hungary races to keep its only nuclear plant online
Hungary, neighboring Romania, has avoided a complete shutdown of its only nuclear plant, Paks, whose four reactors are also cooled by the Danube. Only two of eight turbines at the plant are still working.
Nine days ago, Paks was on the verge of being completely shut down. The continued operation of the last turbine hinged on just a few millimeters of fluctuation in the Danube’s water level.
But with the river expected to drop further, Hungarian Prime Minister Peter Magyar said Wednesday that the government had ordered the construction of a submerged wall, or weir, to try to control flows near the plant.
Two 80-meter (260 feet) barges are also being stationed at Paks that could be sunk to raise the water level.
According to Magyar, Hungarian soldiers were working around the clock on the construction, which should be completed in the next four weeks. This is expected to raise the Danube’s water level by 1.2 meters in front of the cooling system of the plant.
The prime minister estimated the cost at 6 billion forints ($19 million).
The low levels of the Danube, Europe’s second-longest river, have also severely impacted shipping along its 2,850-kilometer (1,770-mile) route stretching from western Germany to its mouth on the Black Sea.
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