This study investigates the nonlinear relationship between oil price shocks and inflation in Iran over the period 1978–2022. Utilizing the Hodrick–Prescott filter, the research first decomposes oil price movements into positive and negative shocks. These shocks, alongside key macroeconomic variables such as liquidity and the exchange rate, are then incorporated into a nonlinear Markov-switching model to examine their respective effects on inflation dynamics. The empirical results reveal a significant nonlinear and asymmetric impact: negative oil price shocks exert a more pronounced influence on inflation compared to positive shocks. This asymmetry is largely attributed to the contractionary consequences of falling oil revenues, which reduce money supply and contribute to economic slowdown. In contrast, positive shocks although expansionary have a relatively weaker transmission effect. The study highlights the importance of accounting for this asymmetry in macroeconomic planning. Accordingly, it recommends that policymakers integrate the direction and magnitude of oil price fluctuations when formulating stabilization and inflation control strategies. These findings underscore the necessity of adopting a nuanced approach in energy-exporting economies like Iran, where external oil market volatility can have substantial domestic inflationary implications.