The Iran war could sharply increase inflation in Switzerland, a new analysis shows. The Swiss National Bank will have to decide whether to increase its key interest rates.
March 6, 2026, 9:36 p.mMarch 6, 2026, 9:36 p.m
It was expensive for Switzerland the last time a war started and caused an energy shock. In February 2022, Russian President Vladimir Putin launched an attack on Ukraine. Switzerland was a long way away, but rents, prices for gasoline and electricity, and mortgage interest rates rose in this country.
Is he also backing down in Iran? US President Donald Trump.Image: keystone
Will the same thing happen after the Iran war as after Putin’s attack on Ukraine? Is history repeating itself with high inflation and high interest rates? Economists at Bank J. Safra Sarasin have calculated what could happen in the worst case scenario.
At that time, Putin cut gas supplies to Europe. The prices for energy sources, such as gas, gasoline and heating oil, shot up. As a result, electricity also became more expensive and inflation returned after more than a decade. At its peak it was higher than it had been since the 1990s. Finally, the Swiss National Bank (SNB) responded with key interest rate increases of more than 2 percentage points. Mortgage interest rates rose, as did the associated rents. In the end, the cost of living in Switzerland was 5 percent higher.
“Horror scenario” has become likely
Today US President Donald Trump is bombing Iran. His government’s justifications for this vary and occasionally sound absurd. According to the Financial Times, Trump’s spokeswoman Karoline Leavitt said the president had a “feeling”. Trump “had the feeling, based on facts, that Iran was going to attack the USA.” He didn’t want to stand idly by and watch this happen.
Now a lot is possible. According to “The Economist”, among other things, the so-called “horror scenario” has become likely. For energy analysts, this has always been an Iranian regime that has nothing left to lose: a regime that shells its neighbors, even if it provokes retaliatory strikes on its own oil infrastructure. A regime that blocks the Strait of Hormuz, even if it annoys China – the main buyer of its oil. In short: a regime that is lashing out wildly.
According to Thomas Friedman, a Middle East expert for the New York Times, the best thing for the regime is actually to “cause as much chaos as possible in the oil and financial markets.” This is how Trump wants to be upset, Friedman tells the US broadcaster “MS Now”. “That’s why it’s hitting in all directions, wanting to drive the price of oil up as much as possible and drive the stock market down as much as possible – in the hope that Trump will back down.”
Oil has already become significantly more expensive, as has gas. The price of electricity is starting to rise on the European markets. “Gas prices have literally exploded and electricity prices are already following suit,” says Pascal Vautier, head of the electricity trader Ompex. “Something is coming to us in the next few days, weeks or even months.”
Trump could become a lame duck
However, there is something to be said against this “horror scenario”. There are initial signs that the Iranian resistance is crumbling. According to the US military, the regime is already firing far fewer missiles and drones than on the first day of the war. According to the New York Times, Israeli intelligence sources report that Iranian soldiers and police officers are no longer reporting for duty.
And even if the regime holds out for a long time, it doesn’t have to be a horror scenario. As the regime intended, Trump could weaken, prematurely declare victory and end the war. According to polls, his attack on Iran is already unpopular and will become even more unpopular in the USA as gasoline prices now rise. Elections are coming up in November. If the Republicans lose their majorities in Congress, Trump will become a lame duck.
Gasoline prices are rising worldwide. In the picture: a gas station near Frankfurt on March 5, 2026.Image: Keystone
But what happens if things in the Middle East develop along a “horror scenario”? The economists at Bank J. Safra Sarasin have calculated a worst-case scenario.
The price of oil then rises to over $100 for several months. In many European countries the economy is falling into recession and inflation is rising significantly. The central banks would be faced with a dilemma. If they raise interest rates, they lower inflation but worsen the recession. If you lower interest rates, you will help the economy, but you will let inflation get out of control.
Things are likely to be turbulent on the financial markets. The most important stock indices in the USA, Europe and Switzerland would fall by at least 15 percent in this scenario. The markets would flee to safe havens. Gold rises to $6,000 per troy ounce. The franc would become so strong that a euro would cost less than 90 centimes for the first time.
Recessions, appreciation of the franc – it would be difficult for the Swiss economy. But one characteristic helps it: it is less dependent on oil than most industrialized countries and is therefore better protected against rising oil prices. According to Sarasin economist Raphael Olszyna-Marzys, “that is the good news.” If oil actually costs $100 soon, most industrialized countries will have two percentage points more inflation and fall into recession. Switzerland will only have one percentage point more and avoid a recession.
An inflation shock twice
Compared to other countries, Switzerland would once again be an island of stability. Nevertheless, it would also have more inflation again. Their economy, which is already running tolerably today, would falter more. How does the Swiss National Bank react? Sarasin economists assume that it will ride out the oil shock.
Higher key interest rates would not be necessary because inflation would remain well below the upper limit of 2 percent set by the SNB. Because Switzerland currently has almost no inflation. A reduction in the key interest rate would not be necessary because the Swiss economy will not end up in a recession. In addition, the National Bank already has zero interest rates. Negative key interest rates themselves have significant side effects.
Switzerland would emerge from the affair more lightly than after Putin’s attack on Ukraine. This is surprising at first glance, because as in the “horror scenario” of the Iran war, the price of oil rose to just over $100 after the Putin shock. The supposed puzzle is explained like this: The Putin shock at the time hit the economy together with the aftereffects of the corona pandemic.
These repercussions in turn fueled inflation. Supply chains had to be reorganized. When the economy was released from the Corona restrictions, demand changed quickly: people no longer wanted home trainers, but instead wanted to make up for the lost months by traveling. At that time, the world suffered two inflation shocks. The Iran war seems to remain a shock. Nobody knows what “feeling” Trump will get next. (aargauerzeitung.ch)