Iran Conflict Pressures Turkish Assets as Central Bank Steps In to Defend Lira Amid Oil Surge

Istanbul | EcoPulse24

Turkish assets experienced significant selling pressure as the military confrontation in Iran widened, leading investors to reduce risk exposure in regional markets and forcing the Turkish Central Bank to act to stabilize the lira and curb volatility.

The Borsa Istanbul 100 Index opened the session with a sharp 5.3% drop before paring losses to trade down about 4% by 11:07 am, while the lira held relatively steady at 43.97 per dollar. The moves reflected an initial wave of intense selling, followed by local participants stepping in.

Pressure also hit the lira-denominated bond market, with yields surging amid concerns that higher energy prices could fuel inflation in Turkey’s energy-import-dependent economy. However, some stocks bucked the trend: defense giant Aselsan gained up to 7.8% on increased interest in the sector.

In the FX market, Turkish banks reportedly sold nearly $5 billion to support the lira, while the central bank was active in lira derivatives on Borsa Istanbul. Policymakers announced exceptional measures, including a short-selling ban until March 6 and eased minimum capital requirements for leveraged equity positions.

The central bank also enacted indirect monetary tightening by suspending its main one-week repo auctions, shifting funding to a higher-cost window at 40% instead of 37%. Additional steps included forward FX sales to be settled in lira, a liquidity absorption tool, and increased purchases of local currency bonds.

Higher oil prices added to the strain, with Brent crude rising about 10% to near $79 a barrel, reducing the scope for possible rate cuts at the March 12 meeting. The central bank had previously forecast year-end inflation between 15% and 21%, based on an average oil price of $60.9 per barrel.

Banking estimates suggest every $10 increase in Brent could add about 1.2 percentage points to inflation over a year, prompting some institutions to revise their 2026 year-end inflation forecasts to 25%. February inflation data, due tomorrow, will provide further market signals.

EcoPulse24 Analysis:
The central bank’s swift action reflects an acute awareness of market sensitivity to currency shocks during external crises. Stabilizing the lira is a primary goal to prevent rapid price transmission, but rising energy costs pose a challenge, forcing monetary policy into a delicate balancing act between financial stability and inflation containment. Short-term outcomes will depend on the interplay between interventions, oil prices, and regional developments.