The war between the US and Iran has reignited, and the ECB Governing Council is keeping a close eye on energy inflation! Oil prices have once again become a key factor in the ECB's monetary policy

The Zhitong Finance App learned that ECB Management Committee member and Bundesbank President Joachim Nagel (Joachim Nagel) said that after the Middle East geopolitical war broke out again and uncertainty about the future of geopolitics rose again, the ECB is closely monitoring global energy costs. In addition to Nagel, opinions recently released by other members of the ECB Governing Council generally focus on the fact that the ECB's monetary policy is more likely to stand still in July, but there is no agreement to end the interest rate hike cycle.

The Bundesbank governor said in an emailed statement that the past few weeks were “both hopeful and accompanied by disappointment.” He added that the resumption of war between the US and Iran highlights that the current situation is still turbulent.

“The trajectory of energy prices is a key factor in determining future inflation prospects,” Nagle said. “Monetary policy will continue to remain vigilant.”

The above remarks were made on the eve of the start of the period of silence before the ECB's July 22-23 meeting. Economists generally expect that members of the ECB Governing Council will agree to keep interest rates unchanged at this meeting. Investors still expect ECB policymakers to raise interest rates again later this year to contain inflationary pressure caused by the Iran conflict.

Bank of Austria Governor Martin Kochel and ECB Executive Committee member Piero Cipollone recently said in separate interviews with newspapers that the second round of inflation effects such as wage increases, which may solidify price pressure, have not been observed yet. Kochel reiterated that next decisions will focus on maintaining or further increasing borrowing costs.

Nagle, on the other hand, stressed that after the decision was made in June, the current borrowing costs are clearly at an “appropriate” level, and the ECB Governing Council will continue to include all relevant data in monetary policy considerations in the next meeting. “From a monetary policy perspective, a cautious response is still wise, but decisive action must also be taken when necessary.” he said.

The ECB raised interest rates by 25 basis points in June, and expects overall inflation to be 3.0% in 2026 and 2.3% in 2027, which is clearly higher than the mid-term target of 2%; currently, the market generally expects that the July suspension and September rate hikes have been fully calculated, and they are betting that interest rates may be raised twice before next spring. This means that the ECB is not re-entering a continuous austerity model, but is waiting to see if the energy shock spreads to wages, service prices, and inflation expectations.

Among the hawkish camp, Bank of Belgium Governor Pierre Winsch has the clearest wording: even if the US-Iran cease-fire lowers oil prices, he still reserves the possibility of raising interest rates as early as July, and believes that if inflation spreads from energy to a wider range of price sectors, the ECB can raise interest rates once more to “ensure safety”; Bank of Greece Governor Giannis Stunaras called the inflationary situation “back to square one” due to the restart of the war. Bank of Austria Governor Martin Kochel said that there are currently no two-round effects such as rising wages or inflation expectations, but clearly stated that future options are mainly maintaining or raising interest rates and acting whenever necessary.

Overall, the ECB Governing Council is currently not “hawks over doves,” but has formed a conditional consensus to first suspend and then decide whether to raise interest rates based on the continuity of the oil price trajectory and the second-round effect.