ECB officials warn Hormuz crisis could unanchor eurozone inflation

Multiple European Central Bank Governing Council members raised concerns on Wednesday over rising Middle East tensions near the Strait of Hormuz, warning that further disruptions to energy supplies could undermine the eurozone's path back to price stability.

Panetta and Moulin Sound the Alarm

In a speech in Rome, Bank of Italy Governor Fabio Panetta said ECB policy must remain "measured enough to keep inflation expectations anchored even in an uncertain geopolitical situation." He added that the Governing Council would "carefully assess conditions in energy markets, and the evolution of the economic situation of wages and of prices for goods and services," with the objective of "limiting the indirect and second-round effects of shocks."bloomberg

Separately, ECB Governing Council member Moulin said the bank "needs to be ready for any eventuality on inflation," according to comments reported on July 15.x+1

Energy Shock Risks in Focus

BNY's The Bank of New York Mellon Corporation ↘ 0.72% Geoff Yu reported that ECB officials Piero Cipollone and Martin Kocher are focused on preventing the energy shock and Middle East uncertainty from feeding into broader eurozone inflation dynamics. Cipollone said the ECB is seeing "the direct impact of higher energy prices and some indirect passthrough to production costs, but not yet second-round effects from wages or corporate pricing behavior." Kocher echoed that view, noting "policy must remain calibrated to expectations amid elevated uncertainty."mitrade

The warnings come as tensions around the Strait of Hormuz have intensified sharply. President Trump recently pledged to reinstate a blockade of Iranian shipping and proposed a 20% levy on vessels transiting the waterway. The United Arab Emirates reported two tankers hit along the southern shipping route, and the UN reported that shipping had come to a near-standstill in the strait, stranding some 6,000 seafarers.youtube+2

Rate Path Uncertain

The ECB raised interest rates by 25 basis points in June — its first hike in nearly three years — bringing the deposit facility rate to 2.25%. Eurozone headline inflation averaged 3.2% in May, well above the ECB's 2% target, driven largely by energy prices that surged following the outbreak of war involving Iran earlier this year.aa+3

Staff projections see headline inflation averaging 3.0% in 2026, returning to 2.0% only in 2028. Markets currently assign a 98% probability of no rate change at the ECB's next meeting in July, though further hikes later in the year remain priced in.ecb.europa+3

The central tension for policymakers remains clear: act too slowly and inflation expectations could become unmoored; move too aggressively and a weakening eurozone economy could tip into recession.