National Bank of Serbia stress-tests inflation shock as Iran conflict threatens energy costs

Serbia’s central bank is preparing for the possibility of another inflation shock as geopolitical tensions in the Middle East increasingly threaten global oil markets, supply chains and macroeconomic stability across Europe. For investors and lenders, the key issue is how quickly energy-driven price moves can spread into core inflation and expectations—especially in an economy that remains highly exposed to imported costs.

Inflation range under NBS scenario analysis

In scenario analysis prepared by experts at the National Bank of Serbia (NBS), average inflation in 2026 could fall to 3.6% in the most optimistic case, but rise to as high as 6.5% under a severe escalation scenario. That worst-case path is linked to prolonged conflict involving Iran and wider disruption across the Persian Gulf energy corridor.

The NBS modeling reflects broader concern among central banks and financial institutions that today’s geopolitical environment could trigger a second major inflationary cycle only a few years after Europe worked through the energy-price shock associated with the Russia-Ukraine war.

Base case: gradual stabilization, oil prices near $90.7

Under the NBS base-case scenario, conflict in the Middle East would gradually stabilize during the second quarter of 2026. That would allow inflation to average around 3.6% during 2026 and approximately 4.4% in 2027.

The model assumes oil prices averaging roughly $90.7 per barrel, with no major long-term disruption to global supply chains.

Adverse cases: higher transport, fertilizer and industrial input costs

Alongside its base case, Serbia’s monetary authorities are examining substantially more adverse outcomes. The “unfavorable” and “very unfavorable” scenarios assume prolonged regional conflict, continued pressure on maritime transport routes including the Strait of Hormuz, and significant damage to Middle Eastern energy infrastructure.

In those conditions, imported inflation pressures would intensify sharply through higher oil prices as well as increases in transport costs, fertilizer prices and industrial input costs.

Why Serbia is vulnerable: imported energy transmission into domestic prices

The sensitivity is heightened because Serbia’s economy remains heavily exposed to imported energy costs and external price transmission. Fuel prices affect transport, logistics, agriculture and industrial production directly, while secondary effects often spread into food and services several quarters later.

Recent data already point to early stages of that mechanism. Serbian banking-sector analysis says March inflation accelerated primarily due to higher transport costs after global oil prices rose above $100 per barrel during periods of intensified conflict-related uncertainty. Transport prices increased by 2.3% month-on-month—the strongest rise since late 2025.

Risk extends beyond temporary energy shocks

Policymakers are focused not only on temporary energy-driven inflation but also on whether higher fuel costs begin feeding into core inflation and wage expectations. If that dynamic takes hold, inflation would become harder to control and could require tighter monetary policy for longer than previously expected.

Inflation target at stake; IMF warnings add pressure

The NBS formally targets inflation at 3% ±1.5 percentage points through 2027 within an inflation-targeting framework coordinated with government economic policy. Under severe conflict scenarios now being modeled, inflation could remain outside that corridor for a prolonged period.

International institutions have already flagged elevated risks. Earlier forecasts from the IMF projected Serbian year-end inflation could approach 7% under stronger external price pressures while also lowering growth expectations for Serbia’s domestic economy—raising concerns about a stagflationary environment where slower growth coincides with persistent inflation.

A similar warning has been voiced across Europe: Croatian central banker and future ECB vice president Boris Vujčić said European monetary authorities must remain “very agile and cautious” because the Iran conflict is increasing stagflation risks throughout the continent.

Financing needs, corporate investment and EU trade pressures

The challenge for Serbia is particularly delicate because it depends heavily on external financing, foreign direct investment and stable consumption growth. Higher inflation could weaken household purchasing power, raise corporate financing costs and slow industrial investment—at a time when exporters face mounting pressure from the EU’s tightening carbon and industrial trade framework.

Temporary buffers—and limits if disruptions persist

To cushion imported energy shocks, Serbian authorities have introduced temporary measures including export restrictions on petroleum products, temporary excise reductions and state control mechanisms over fuel pricing. Still, policymakers recognize that administrative interventions can only partially offset prolonged external pressure if oil markets remain structurally disrupted.

Agriculture risk through fertilizer supply disruptions

An additional concern lies in agriculture and food production. Analysts note that the Persian Gulf region accounts for roughly one-third of global fertilizer exports; sustained disruption could therefore feed directly into fertilizer prices, agricultural production costs and food inflation during the second half of the year.

Markets watch currency stability as reserves face management challenges

Financial markets are also tracking whether Serbia can maintain monetary and currency stability if global volatility intensifies further. The NBS still has relatively strong foreign exchange reserves—about €28.5 billion earlier this year—but persistent imported inflation could complicate exchange-rate management and domestic liquidity conditions.

Implications for investors: geopolitics back in economic assumptions

For investors, lenders and industrial companies operating in Serbia, the NBS scenarios underscore how rapidly geopolitical risk can become embedded into economic planning assumptions once again. Energy exposure, commodity procurement choices, logistics resilience and pricing power are moving back toward the center of corporate risk management across Southeast Europe—particularly where cost pass-through from fuel to broader consumer prices can accelerate quickly.