Europe | The ECB and oil, without juggling

Summary

The European Central Bank addresses the recent energy supply shock caused by the conflict in the Middle East by developing multiple economic scenarios. Given the volatility of oil and gas prices, the institution adopts a strict stance to anchor inflation expectations and prevent second-round effects.

Key points

• Key points:
• The geopolitical situation has been complicated by the high percentage of global hydrocarbon production trapped in the Gulf, the lack of clarity in US objectives, and Iran's asymmetric response.
• The three scenarios projected by the monetary authority incorporate a high persistence of crude oil and gas prices, suggesting a willingness to raise interest rates if the military conflict is prolonged.
• The baseline scenario assumes the energy futures prices dictated by financial markets, biasing inflationary impacts upwards to avoid second-round effects derived from rising energy costs.
• Although the military confrontation could end suddenly, it will generate lasting consequences for the pursuit of European strategic autonomy and accelerate the global transition towards alternative energy sources.

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