After many days of crossfire around the Strait of Hormuz, international oil prices rose again, and the market began to reassess the interest rate options for next week’s ECB meeting. Prior to that, investors once thought that the ECB would hold back at its 22nd July meeting, energy prices rebounded to loosen that judgment.

The oil price rebounded and raised interest.

Brent crude oil was reset over $85 per barrel on Wednesday morning of the September contract, and just a week ago prices were close to pre-war levels of about $70. The escalation of the Strait of Hormuz, an important global oil transport route, rapidly magnifies market concerns about supply disruptions.

According to the Governor of the German Central Bank and the European Central Bank Supervisory Committee, Nagar, the resurgence of military conflict in the Middle East and a new round of oil price increases suggest that the situation is “extremely volatile” and that uncertainty remains high. He stated that monetary policy needed to be prudent, but also to act decisively when necessary.

The ECB unexpectedly turned over last month.

The ECB dropped interest rates four times in the first half of 2025, and deposit rates fell from 3 per cent at the beginning of the year to 2 per cent at mid-June. At the June meeting, however, the ECB increased the interest rate on key deposits by 25 basis points to 2.25 per cent, influenced by energy price hikes.

Before the war in Iran, inflation in the eurozone as a whole was once close to the ECB’s target of 2 per cent, and then rose to 3.2 per cent in May. Preliminary data show that the monthly inflation fell to 2.8 per cent in June, but that the cost of energy for that month continued to rise by 8.7 per cent over the same period. Core inflation remained at 2.4 per cent, indicating that the energy shock had not yet been fully transmitted to the wider economic sector.

The absence of the latest data makes decision-making more difficult

When the ECB makes its interest rate decision next week, it will not reach the eurozone’s second-quarter start of GDP and July inflation, which will not be released until 30 and 31 July. This means that decisions will be made at the decision-making level when information is incomplete.

ING Interest rate strategist said that inflation data in the euro zone would be key to testing current price pricing for hawk markets, but even so, it would be difficult for markets to completely exclude the two rounds of inflation risk associated with continued upward energy prices. In contrast, inflation dynamics in the United States are more likely to continue falling, while Europe’s high inflation is not necessarily already present.

The market continues to tighten.

Although the market is still pricing only about 20% of the ECB’s interest rate hike next week, investors still expect the ECB to increase interest rates two more times, 25 basis points each, by next spring, at 2.75% of the deposit rate.

For the ECB, the challenge is to balance inflation with growth. The eurozone economy contracted by 0.2 per cent the same year in the first quarter of 2026, and the risk of recession could rise further if policies were too tight; but if oil prices continued to rise, inflation could be expected to rise again.

Koch, President of the Austrian Central Bank, stated that current policymakers were paying particular attention to the indirect price effects of the Middle East war and the potential two-round effects. For the time being, these two-round effects have not yet emerged, but monetary policy still needs to be consistent with inflation expectations.