Brazil and the Iran war: How the Middle East conflict could throw the Selic rate – and your finances – into chaos

The week kicked off with a bombshell (quite literally) for global markets. The escalation of the war in Iran, following Israeli attacks on strategic facilities in Tehran, isn't just another chapter in the tense Middle Eastern saga. For those living in Brazil, the sound of explosions from far away will soon echo close to home – and, sooner than you think, hit your pocket.

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

The fuel of discord: oil and inflation

The first spark connecting 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.

For starters, petrol prices at Petrobras refineries are tied to the international market. If oil prices spike abroad, sooner or later, those increases will hit the pumps. And when fuel prices go up, it's not just filling up your car that becomes more expensive. Supermarket freight, food prices, bus fares... everything becomes a target for inflation. The financial market crowd is already crunching the numbers: a prolonged shock could send the IPCA inflation index soaring just as service inflation was starting to show signs of easing.

The Central Bank's dilemma: cut the Selic rate 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 war in Iran has thrown a wrench in those plans.

• Upward pressure: If inflation accelerates due to oil prices, the Central Bank is forced to hold interest rates steady, or even consider raising them again, to contain prices. It's the famous "bitter medicine" that cools down the economy.
• Soaring dollar: International conflicts send investors flocking to safe havens, like the US dollar. With a more expensive American currency, imports become pricier 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 stalls growth.

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

A guide (review) 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 family planning.

In a context of Brazil and the war in Iran, 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 (like 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 Brazilian family, the message is clear: brace your wallet for more pressure on food and fuel prices. Household budgeting needs to account for the fact that electricity bills (influenced by tariff flags tied to the cost of thermal power plants) could also get steeper if the government doesn't step in. And the dream of owning a home, financed with lower interest rates, might have to wait.

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

Right now, analysts around the world are revising their reports. What was once an optimistic outlook for the Brazilian economy at the start of the year now carries a giant question mark called the Middle East. The most honest guide I can give is: keep a close eye on the Central Bank's decisions and the next moves by 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 pubs, in supermarket queues, and in Copom meetings. And as every Brazilian knows, when the Selic rate sneezes, the whole country catches a cold.