Rate hikes won’t curb Iran war stagflation, analysts say

Binaya Dahal

Journalist

16 April 2026

The war in Iran represents a stagflationary impulse for the global economy but reacting with rate hikes now could constitute a policy mistake that would soon need to be reversed, analysts have warned.

Market Strategists at LGT Capital Partners’ Ikram Boulfernane, Boris Pavlu and Thomas Kristensen said monetary authorities should “look through” near-term upticks in headline inflation driven by geopolitical disruption in the Middle East, particularly through energy markets.

“Central banks are bound to stand firm, leaving key interest rates unchanged – and that comes after they materially lowered them in the months beforehand,” they said.

The spike in oil and gas prices due to the closure of the Strait of Hormuz, one of the world’s most critical shipping chokepoint, has been a key driver of recent inflation concerns, but analysts expect the disruption to prove temporary rather than structural.

“If we look back at history, there is evidence that high-intensity conflicts rarely last very long and that geopolitical shocks often fade quickly,” they noted.

“The steps that have been taken to de-escalate hostilities and enforce a re-opening of the shipping routes already go a long way towards restoring the flow of critical commodities.”

They also reject the comparisons of current scenario with the run-up to the 2008 global financial crisis. “Current situation is substantially different to the rise in oil prices witnessed in 2007 and 2008, when strong demand − especially from the then fast-growing emerging markets − simply eclipsed the world’s production capacity.”

“Today’s energy markets were well balanced before the war started and are likely to settle down again soon.”

While inflation risks could persist if the conflict drags on, they said shifting sentiment around artificial intelligence in recent times could compound a broader stagflationary problem, as AI remain a key long-term driver of growth, earnings and investment returns.

“Companies offering software solutions and consultancy services were in the crosshairs, but other potentially affected industries also saw declines in stock prices and a widening of credit spreads,” analysts said.

“Markets have thus apparently decided to complement the uniformly optimistic outlook on AI to date with more gloomy scenarios. Some of these foresee bankruptcies, layoffs and even socio-economic crises.”

Analysts added that fears of disruption, in some cases, have run ahead of fundamentals, with many firms penalised despite continued operational strength.

Despite the volatility, they said underlying macro conditions remain broadly resilient, supported by solid investment, fiscal spending and consumer strength.