Renewed U.S.–Iran Hostilities Heighten Uncertainty Ahead of ECB’s July Rate Decision

A series of strikes between the United States and Iran over control of the Strait of Hormuz has pushed Brent crude above $85 a barrel, reviving concerns about oil-supply disruptions. The spike in energy prices has been identified by market participants as a key factor clouding expectations for the European Central Bank’s (ECB) monetary-policy meeting scheduled for July 22, 2026. Traders who had been pricing in a hold are now weighing a possible rate hike, with the probability of a September increase climbing to 92 % according to market data.

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After cutting its key deposit rate four times in the first half of 2025—from 3 % to 2 % by mid-June—the ECB reversed course in May, raising the rate by 25 basis points to 2.25 %. The move came as headline inflation, which had hovered near the ECB’s 2 % target, surged to a May peak of 3.2 % before easing to 2.8 % in June. Eurozone bond yields have risen sharply over the past year, reflecting heightened market anxiety about future policy direction.

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Eurostat data show the eurozone imported 57 % of its energy needs in 2024, making it vulnerable to oil-price shocks. Core inflation remained at 2.4 % in June, suggesting limited “second-round” effects, while overall inflation eased to 2.8 % despite an 8.7 % year-on-year rise in energy costs for the month. ECB staff projections anticipate GDP growth of 0.8 % in 2026, with modest acceleration to 1.2 % in 2027 and 1.5 % in 2029.

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Bundesbank President Joachim Nagel warned that the renewed Middle-East conflict and rising oil prices keep the environment “extremely volatile” and call for a cautious yet decisive monetary stance. ECB policymaker Yannis Stournaras highlighted that the hostilities have “reignited uncertainty over the inflation and growth outlook,” noting that higher energy costs and weaker confidence are expected to weigh on eurozone growth throughout 2026. Both officials emphasized that a concrete de-escalation would likely lower oil prices and reduce pressure for further rate hikes.

ECB policymaker Stournaras says renewed US-Iran conflict reignited inflation and growth worriesCNBC

• “The renewed outbreak of military conflict in the Middle East and the fresh rise in oil prices underscore that the situation remains extremely volatile and the uncertainty is similarly high,” — Joachim Nagel, Bundesbank President

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• “It remains advisable to react with caution, but to act decisively if necessary,” — Joachim Nagel, Bundesbank President

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• “Monetary policy will maintain its vigilant stance.” — Joachim Nagel, Bundesbank President

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• “Full report here ECB's Stournaras said renewed hostilities in the Middle East have reignited uncertainty over the inflation and growth outlook after the swift easing in energy prices following the US-Iran Memorandum of Understanding.” — Yannis Stournaras, ECB policymaker

ECB policymaker Stournaras says renewed US-Iran conflict reignited inflation and growth worries