"Super Central Bank Week" Meets Middle East Turmoil

As major central banks around the world intensively signal rising inflation uncertainties, overall market risk appetite remains under pressure. Aside from oil prices, global stock markets, traditional safe-haven assets, and metal prices have all declined to varying degrees, showing a “synchronous weakening” trend.

The sudden escalation of conflicts between the US, Israel, and Iran, along with the disruption of shipping through the Strait of Hormuz, caused international oil prices to surge nearly 50% within just 20 days, with Brent crude futures surpassing $110 per barrel on March 19.

The spike in oil prices reignited inflation fears, prompting central banks worldwide to reassess their monetary policy paths.

This week marks the first “Super Central Bank Week” after the Middle East conflict escalation, with about 20 central banks holding monetary policy meetings, covering nearly two-thirds of the global economy.

In addition to the Reserve Bank of Australia raising interest rates, most major central banks—including the Federal Reserve, Bank of Japan, European Central Bank, and Bank of England—kept rates unchanged, balancing the challenges of “fighting inflation” and “stabilizing growth.”

Reigniting Inflation Concerns

The Strait of Hormuz, a critical route carrying about a quarter of global maritime oil trade, has been nearly at a standstill over the past 20 days.

Maritime and trade data platforms show that since the outbreak of the US-Israel-Iran conflict on February 28, only about 90 ships, including oil tankers, have crossed the Strait of Hormuz.

According to Xinhua News Agency, White House Press Secretary Karine Jean-Pierre stated on March 18 that the US is maintaining communication with European and Middle Eastern allies, urging them to “step up efforts” to ensure the safe passage through the Strait of Hormuz. Recently, President Trump has repeatedly urged European and other regional allies to participate in escorting ships through the Strait, complaining that some allies are “not enthusiastic” about assisting the US.

On March 19, France, the UK, Germany, Italy, the Netherlands, and Japan issued a joint statement announcing their readiness to take appropriate measures to ensure navigation safety through the Strait of Hormuz.

In response, IMO Secretary-General Kitack Lim said on the 19th that naval escort is not a long-term sustainable solution to the current crisis in the Strait of Hormuz. Only ending the conflict will prevent shipping from becoming collateral damage.

On the same day, Iran’s Tehran Times social media account reported that the Iranian parliament is pushing a bill that, if passed, would obligate countries using the Strait of Hormuz as a safe passage for ships, energy, and grain transport to pay transit fees and taxes to Iran.

In addition to disruptions in Strait of Hormuz shipping, attacks on Middle Eastern oil facilities have also impacted the global energy market. Qatar’s Ministry of Interior and QatarEnergy announced on March 18 that the Ras Laffan industrial city was set on fire due to a missile attack, causing extensive damage. Israel attacked Iranian natural gas fields on March 18, prompting Iran to issue an emergency warning that oil facilities in Saudi Arabia, the UAE, and Qatar have become “legitimate targets.”

Meanwhile, the US is attempting to cool tensions. US Treasury Secretary Janet Yellen on March 19 said that the US might lift sanctions on Iranian oil already at sea in the coming days to ease price pressures during the Middle East conflict. When asked about deploying troops to Iran, Trump said, “We will not send troops anywhere.”

Although the International Energy Agency coordinated member countries to release 400 million barrels from strategic reserves to ease global oil supply tightness, international oil prices continue to fluctuate significantly. On March 19, Brent crude briefly surged to over $110 per barrel, up nearly 50% since the conflict began. On March 20, due to Trump’s comments, Brent retreated below $101 per barrel.

ICBC International Chief Economist Cheng Shi told the “International Financial News” that unlike traditional economic shocks, geopolitical risks have obvious nonlinear and uncertain effects on the economy. Their transmission pathways involve not only energy price fluctuations but also impacts through financial market risk appetite, corporate investment decisions, and inflation expectations.

During this “Super Central Bank Week,” major global central banks also expressed concerns about inflation.

The Federal Reserve’s March 18 policy statement added that “the impact of Middle East tensions on the US economy is uncertain.” Fed Chair Powell admitted after the meeting that rising oil prices put the Fed in a “very difficult position,” and future policy paths will be “highly data-dependent.” He clearly stated that if oil prices remain high for an extended period, it would indeed suppress consumption, disposable income, and overall spending. However, it remains uncertain how long this shock will last and how severe its impact will be, though the potential impact on the US and global economy should not be underestimated.

The Bank of Japan, in its March 19 statement, explicitly warned that the Middle East situation is the “biggest external risk” facing Japan’s economy. As a country about 95% dependent on energy imports, the surge in oil prices combined with yen depreciation creates a “double whammy,” intensifying imported inflation.

The Bank of England also stated that the Middle East conflict has led to a sharp rise in global energy and commodity prices, directly increasing household fuel and utility costs, and indirectly through corporate costs, pushing up CPI inflation in the short term. The latest forecast shows inflation exceeding 3% in February and rising further to nearly 3.5% in March. The Bank remains highly alert to “second-round effects,” fearing that rising energy prices could trigger a wage-price spiral.

The European Central Bank, in its March 19 statement, said that the conflict in the Middle East has significantly increased uncertainty about the eurozone’s economic outlook, posing upside risks to inflation and downside risks to growth. The ECB emphasized that if oil and natural gas supplies are disrupted long-term, inflation could be higher than baseline forecasts, and it is prepared to adjust all policy tools within its mandate.

This crisis has rekindled painful memories of the 2022 energy price shock. After the Russia-Ukraine conflict erupted, major economies experienced double-digit inflation, but the Fed, ECB, and others insisted that “inflation is temporary,” leading to delayed responses and persistently high inflation.

Divergence in Central Bank Policies

Amid rising oil prices and inflation fears, major central banks worldwide are diverging significantly in their monetary policies. The Reserve Bank of Australia was the first to act, raising its benchmark rate by 25 basis points to 4.10% on March 17, the highest since April 2025, marking the first rate hike by a major developed market this year.

This is also the second consecutive month the RBA has increased rates, with a narrow 5-4 vote. The RBA stated that although inflation has fallen sharply from its 2022 peak, it is expected to rise significantly again in the second half of 2025. Despite the high uncertainty surrounding the Middle East situation, the risk of further global and Australian inflation increases justifies rate hikes, as inflation may remain above target for some time.

The Federal Reserve, on March 18, announced it would keep the federal funds rate target range unchanged at 3.50%–3.75%, marking the second consecutive pause. Only Trump-appointed Governor Christopher Waller supported a 25 basis point cut; the other 11 voting members favored holding rates steady.

The dot plot released after the meeting showed that by the end of 2026, the median projection for the federal funds rate is 3.4%; by the end of 2027, 3.1%, unchanged from December last year. This implies one rate cut each in 2024 and 2025.

Peter Cardillo, Chief Market Economist at Spartan Capital Securities, said the Fed is being very cautious, and rate cuts might not happen until Q4, depending on energy prices. If energy prices stay high, inflation will remain elevated, economic growth could be below 1%, and stagflation might set in.

Like the Fed, the Bank of Japan, Bank of England, and ECB all chose to hold steady.

The Bank of Japan, with an 8-1 vote, kept its short-term policy rate at 0.75%, marking its second cautious pause. The BOJ stated it will continue to implement monetary policy from the perspective of sustainably and stably achieving the 2% inflation target. The statement noted that if economic and price trends align with forecasts, the bank will continue to raise policy rates as economic activity and prices improve.

The Bank of England unanimously decided to keep the benchmark rate at 3.75%, and stated it is “ready to act” to address risks of persistent inflation driven by Middle East tensions. This was the first unanimous vote in nearly four and a half years.

Notably, the minutes marked a significant shift in tone—removing the February statement’s mention that the rate “may be further lowered,” instead opening the door for rate hikes.

Bank of England Governor Andrew Bailey emphasized that monetary policy must address the risk of more persistent UK inflation.

The ECB, for the sixth consecutive meeting, kept its three main interest rates unchanged: deposit facility at 2%, main refinancing rate at 2.15%, and marginal lending rate at 2.40%. The ECB reiterated that it will not pre-commit to a specific rate path and is prepared to adjust all policy tools as needed.

HSBC economist Balboni pointed out, “Given the experience of the 2022 energy crisis and the trauma still felt by consumers, if energy pressures persist, the ECB may accelerate rate hikes.”

Amid this environment of inflation fears and cautious stance, Brazil’s central bank stands out as an exception. On March 18, Brazil’s central bank announced a 25 basis point rate cut to 14.75%. Previously, the rate had been held at 15% for five consecutive meetings, the highest since July 2006.

The Central Bank of Brazil stated that inflation outlook risks—both upside and downside—are already above normal levels. The outbreak of Middle East conflict has further intensified these risks, and the sustained high rates have begun to slow economic growth. However, the rate cut was smaller than the market’s expected 50 basis points, reflecting cautiousness in a high-inflation environment. The bank noted that the prolonged high rates have transmitted to slower economic activity, prompting a need to calibrate monetary policy.

Safe-Haven Assets Fail

As major central banks signal rising inflation uncertainties, market risk appetite remains under pressure. Besides oil, global stock markets, traditional safe assets, and metals have all declined, showing a “synchronous weakness.”

On March 19, US stocks fell across the board, with the S&P 500 down about 3.5% year-to-date, hitting a nearly four-month low. Gold and silver prices plunged sharply. Spot gold dropped 3.5%, briefly falling below $1,950 per ounce, marking the seventh consecutive day of decline—the longest streak in 2023—and hitting a six-week low. Spot silver fell more sharply, dropping over 12% intraday, breaking below $66, reaching a new low since February 6. Platinum and palladium declined 17% and 15%, respectively. Industrial metals like copper and aluminum also declined, reflecting a systemic downward revision of global growth expectations.

Mike Dickson, Head of Research and Quantitative Strategies at Horizon Investments, noted that markets are digesting the latest central bank signals, with inflation risks once again becoming the dominant factor.

JPMorgan warned that if the Strait of Hormuz cannot reopen, Brent and WTI futures will be forced to reprice upward.

Aditya Saraswat, Vice President at Rystad Energy, said in a report that if Iran attacks facilities in Saudi Arabia, the UAE, or Qatar, the global market could lose at least 700,000 barrels per day of refined oil capacity. Disruption at key infrastructure like the Port of Yanbu could lead to daily losses of 5 to 6 million barrels, potentially pushing oil prices to $150 per barrel or higher.

In equities, UBS strategist Andrew Garthwaite believes that global stock markets may continue to consolidate in the short term due to high uncertainty and multiple macro scenarios. UBS has lowered its 2026 target for the MSCI World Index from 1,130 to 1,100 points; if the conflict persists beyond three months without productivity gains, the index could fall about 30% from current levels.

Historically, safe-haven assets do not always perform strongly during geopolitical shocks. For example, after the outbreak of the Russia-Ukraine conflict, energy prices surged, boosting inflation, but gold prices fell continuously from April to October of that year.

Yao Yuan, Senior Investment Strategist at Dongfang Huili Asset Management, explained that in the short term, geopolitical conflicts and energy price shocks are the main drivers of “risk-off” trades. Investors tend to cash out of portfolios, especially from recent outperformers, to raise cash amid war clouds. Under this logic, selling pressure hurts gold; buying tends to favor the US dollar, especially cash holdings, rather than bonds. If investors expect gold to rebound precisely when risk assets sell off, they will be disappointed—gold is not a perfect short-term safe haven.

However, in the longer term, the logic of safe-haven assets remains intact. UBS suggests that ongoing geopolitical tensions could slow global growth, prompting fiscal and monetary stimulus measures worldwide, which would support gold’s upward potential.

Shenwan Hongyuan Futures also believes that concerns over US fiscal sustainability are intensifying, and with ongoing global political and economic restructuring, diversification of reserve assets, and de-dollarization, gold is likely to maintain a long-term upward trend.