Turkiye’s economy faces a potentially temporary setback due to the recent conflict in the Middle East, but authorities are prepared to implement further measures if instability continues, Finance Minister Mehmet Simsek stated on Thursday.

In an interview with a Turkish broadcaster, Simsek emphasized that the government is ready to deploy “a different set of tools” should the ceasefire between the United States and Iran, announced earlier this week, fail to hold. While he did not specify the nature of these additional steps, the minister indicated that the main planning assumption was for a conflict lasting about one month, with a longer three-month war posing considerably greater risks.

Since the onset of hostilities, Turkiye’s central bank has taken aggressive measures to defend the lira and stabilize the economy. These actions include pausing its easing cycle at a 37% policy rate, raising the overnight rate by nearly 300 basis points to close to 40%, and utilizing tens of billions of dollars in foreign exchange and gold reserves through sales and swaps. The conflict, which lasted over five weeks before the ceasefire began on Wednesday, triggered sharp increases in energy prices and contributed to volatility in financial markets. Nonetheless, fresh Israeli strikes on targets in Lebanon Thursday raised concerns about the ceasefire’s durability.

Simsek acknowledged the conflict inflicted a “serious shock” on the economy, leading to a deterioration in the inflation outlook. Officials had anticipated inflation falling below 20% by the end of the year, but recent developments have tempered these expectations. The current-account deficit is also expected to widen amid the disruption. Since fighting erupted, central bank reserves fell by $48.7 billion, though Simsek reported that nearly $162 billion in reserves remain and projected a return to pre-crisis levels once hostilities cease.

Should the ceasefire collapse, the minister warned of heightened global risks including recessionary pressures and stagflation. Additionally, he highlighted the potential for prolonged disruptions to international supply chains that could take months to normalize.

Prior to the ceasefire announcement, market analysts widely expected the central bank to increase its main policy rate later this month; however, these expectations may shift if the ceasefire endures, alleviating pressure on global energy markets. Simsek and Central Bank Governor Fatih Karahan recently engaged with foreign investors in London to provide updates on the government’s interventions.

On Thursday, Simsek noted a “very strong” reversal in capital flows beginning Wednesday, following weeks of outflows, attributing renewed investor confidence to Turkiye’s sound macroeconomic fundamentals despite the recent shocks.