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Middle Eastern crisis: a headache for almost all central bankers
The comeback of imported inflation is reshuffling the monetary landscape: tensions are rising in Europe and Japan, whilst Switzerland and China are seeing an unexpected respite.
When energy prices surge sharply and sustainably, the ripple effect is rapid, widespread and remarkably persistent. The shock first hits transport, seeps into industry, and then reaches everyday consumer goods. Supply chains amplify the impact: more expensive fuel, higher freight costs, tight supplies of raw materials, and longer lead times. Everything converges towards a generalised rise in costs. Added to this is the scarcity of fertilisers, which will inevitably put pressure on agricultural prices from the second half of the year onwards.
The countries most exposed are net energy importers: members of the eurozone, Japan, India, South Korea, Turkey and South Africa. For them, the energy bill acts as an external tax, simultaneously eroding purchasing power, corporate margins and external balances. Conversely, energy-producing countries are better able to absorb the shock: led by the Gulf exporters, but also all economies where energy remains a pillar of public revenue and external accounts.
North America occupies an intermediate position. The United States, Canada and Mexico benefit, to varying degrees, from their status as major producers or exporters, which provides them with a significant buffer.
Finally, China remains vulnerable, but has three safety nets: recently built-up hydrocarbon stocks, discounted Russian imports and a long-term strategy focused on renewable energy.
All countries are feeling the impact, but to very different degrees and with very different degrees of flexibility.
Monetary policy: the major point of tension
In importing countries, the risk is both monetary and cyclical. Higher imported inflation may force central banks to raise their policy rates, or keep them high for an extended period, even as growth slows. This is the most uncomfortable scenario, as it raises the risk of prolonged stagnation, or even recession. Rising energy costs not only make consumers poorer; they also restrict the scope for action available to monetary authorities.
The economies most heavily indebted or most dependent on loose financial conditions view this prospect with concern. The United States and Japan, in particular, have no interest in seeing the cost of borrowing rise sustainably. Debt servicing becomes more burdensome, refinancing needs become more acute, and fiscal margins tighten.
Unequal room for manoeuvre
Conversely, the People’s Bank of China and the Swiss National Bank welcome this new regime with a sense of quiet, almost paradoxical relief. China and Switzerland are approaching this episode from a unique position: both have already significantly eased their policies to counter deflationary forces, without having completely dispelled them. With policy rates already low and limited conventional room for manoeuvre, a moderate rise in import prices eases the deflationary squeeze.
For these two central banks, the energy shock could therefore, on balance, have less adverse effects than for their counterparts. Whereas Europe and Japan risk being pushed towards greater monetary tightening in an already fragile environment, Switzerland and China could benefit from a more subtle rebalancing: less deflationary pressure, a limited need for further easing and, possibly, a temporary easing of pressure on their currencies.
In the short term, the monetary status quo thus appears to be the order of the day in both Switzerland and China. The easing of disinflationary pressures is welcome, as is the likely, at least temporary, retreat of the forces driving the appreciation of the franc and the yuan.
No need to panic, but no room for complacency
At this stage, finance ministers have not yet switched to panic mode. The scale of the shock remains, for the time being, smaller than that of past major oil crises, and some economies are even reaping temporary benefits from it.
Complacency would, however, be ill-advised. If the conflict were to drag on into the second half of the year, the risk of inflation becoming entrenched at a level persistently above central banks’ medium-term targets cannot be ruled out. In such a scenario, an old spectre would resurface: that of a positive correlation between the major asset classes, with equities and bonds moving downwards in tandem, with potentially destabilising consequences for the financial markets.
May 07, 2026
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