Filenews 16 June 2025 - by Theano Thiopoulou
A new period of turmoil is taking shape internationally and begins with Israel's surprise attack on Iran's nuclear facilities in the early hours of last Friday (June 13), a development that not only causes geopolitical tension but also translates into a wide range of economic consequences, with Europe – and Cyprus – entering a new phase of uncertainty.
The government is in a state of vigilance, monitoring the developments that may trigger a domino effect, from energy and inflation, to tourist flows, and is trying to manage the risks posed by this new crisis in a timely manner. A crucial factor in the equation of the next few days is Iran's reaction.
If Tehran decides to restrict or block navigation in the Strait of Hormuz, then the global oil market could suffer a serious blow. About 30% of the world's oil trade passes through this strategic passage. Such a development would have an explosive effect on international prices and potentially affect the safety of maritime transport in the Eastern Mediterranean – with indirect consequences for shipping as well. It should be noted that Cyprus imports all the amount of oil it consumes, as it does not produce oil domestically.
In the Strategic Fiscal Policy Framework 2026-2028 published by the Ministry of Finance, which was prepared and published before the start of the fierce military attacks between Israel and Iran, it mentions the geopolitical risks that could affect the baseline macroeconomic scenario on which the fiscal targets are based. It states that "significant risks arise from geopolitical developments in Ukraine, following the invasion by Russia as well as from the war in the Middle East. Their outcome will largely determine the evolution of the global economy in the coming years."
The Ministry of Finance estimates that for 2025, inflation is expected to decline to 1.9%, mainly due to the decline in international oil prices (before the new geopolitical turmoil breaks out).
The first reaction of the markets after the developments was almost instantaneous: the price of Brent crude oil soared to $74 a barrel, a price that had not been recorded since the beginning of February. This rise reverses the previously downward trend in prices and foreshadows a new cycle of inflationary pressures, which may be seen in fuel prices in the coming period.
