ECB Weighs Rate Hikes Amid Iran Conflict Energy Surge

Frankfurt, Germany - The European Central Bank is weighing potential interest rate hikes in response to surging energy prices triggered by the U.S.-Israeli war with Iran, though a majority of economists expect the central bank to maintain its current policy stance through the end of 2025.

The conflict erupted in late February 2025 with U.S.-Israeli strikes on Iranian targets, leading to a near-total closure of the Strait of Hormuz and attacks on Gulf energy infrastructure. Oil prices have risen about 40 percent as a result, driving up forecasts for eurozone inflation and prompting analysts to increase bets on ECB tightening. At its March 19 policy meeting, the ECB held its key deposit rate steady at 2 percent, but officials signaled vigilance amid the shock. Inflation stood at 1.9 percent in February, close to the bank's 2 percent target, according to Eurostat data.

ECB President Christine Lagarde emphasized the institution's readiness to act during a speech at ECB headquarters on Wednesday. "We will not be paralyzed by hesitation," she said, noting that the eurozone economy is on a sounder footing than during Russia's 2022 invasion of Ukraine, when inflation peaked at 10.6...