Brazil and the Iran conflict: How the Middle East turmoil could throw a spanner in the works for the Selic rate and your finances

The week kicked off with a (literal) bombshell in global markets. The escalation of the conflict with Iran, following Israeli strikes on strategic sites in Tehran, is far more than just another tense chapter in the Middle East saga. For those living in Brazil, the echo of those distant explosions will soon reach our ears – and, sooner than you might think, the pound in your pocket.

Forget the idea that international conflicts are someone else's problem. Brazil and the war in Iran might seem like distant issues, but the truth is, the dust kicking up in Tehran is already beginning to haunt the Monetary Policy Committee (Copom) back in Brasília. The flight plan charted by the Central Bank for 2026, which envisioned a smooth landing for interest rates, could hit severe turbulence at any moment.

The core of the conflict: oil and inflation

The first spark linking Iran to Brazil is the price of oil. International markets are in panic mode. Any threat of disruption in the Strait of Hormuz – through which nearly a fifth of the world's oil passes – sends the price per barrel soaring. And Brazil, which has recently become a major oil exporter, isn't immune to this rollercoaster.

To start with, petrol prices at Petrobras refineries take their cue from the international market. If oil prices surge abroad, a price adjustment at the pump is inevitable sooner or later. And when fuel costs rise, it's not just filling up your car that gets more expensive. Supermarket deliveries, food prices, bus fares... everything becomes a target for inflation. The financial crowd are already reworking their spreadsheets: a prolonged shock could send the IPCA inflation index shooting up just as services inflation was beginning to ease off.

The Central Bank's dilemma: cut the Selic or hold steady?

And this is where things get serious for our economy. The Central Bank had been signalling a cycle of Selic rate cuts for the second half of the year. The idea was to provide some relief for credit and stimulate economic activity. But the conflict in Iran has thrown that script out the window.

• Upward pressure: If inflation accelerates due to oil prices, the Central Bank is forced to hold rates steady, or even consider raising them again, to contain prices. It's the famous "bitter pill" that cools the economy.
• Sky-high dollar: International conflicts send investors flocking to safe havens, like the US dollar. With a more expensive dollar, imports become costlier and companies' foreign debt increases, creating further inflationary pressure.
• Total uncertainty: Nobody likes to invest in the dark. The volatility caused by the war makes the financial market tighten credit and demand higher risk premiums. This stifles growth.

What was supposed to be a year of relief on interest rates could turn into a new nightmare of a high Selic rate for longer. Copom members, who were already divided on the pace of cuts, now have a powerful argument for the cautious camp.

A guide to understanding what lies ahead

If you're feeling lost about how to navigate this scenario, don't worry. Let's break down the key points so you can use this information to your advantage, whether in your investments or your family budgeting.

In a context of Brazil and the Iran conflict, the best path is diversification. Those with money invested need to understand that inflation-linked fixed-income assets (like IPCA+ bonds) could gain even more traction. Variable income, especially shares in commodity-linked companies (such as oil and mining firms), tends to ride the wave of rising international prices. But beware: it's a high-stakes game, only for those with a strong stomach.

For the average Brazilian family, the message is clear: brace your finances for more pressure on food and fuel prices. Household budgets need to account for the fact that electricity bills (influenced by tariff flags linked to the cost of thermoelectric plants) could also get steeper if the government doesn't step in. And the dream of owning a home, with lower interest rates financing the property, might have to be put on hold.

The verdict: we still don't know the scale of the damage

Right now, analysts worldwide are revising their reports. What was an optimistic outlook for the Brazilian economy at the start of the year now carries a giant question mark labelled 'Middle East'. The most honest guide I can give is: keep a close eye on the Central Bank's decisions and the next moves from Israel and Iran.

One thing is certain: the war in Iran is no longer just a foreign policy issue. It's become a topic of conversation in the local pub, in the supermarket queue, and in Copom meetings. And as every Brazilian knows, when the Selic rate sneezes, the whole country catches a cold.