ECB Policymakers Split on Rate Hikes as Iran War Sends Oil Prices Soaring 60%

Oil prices have surged roughly 60% in just over a week since the Iran war began, forcing the European Central Bank into an uncomfortable position. Markets are now pricing around 40 basis points of ECB rate hikes this year as energy-driven inflation concerns mount. However, ECB policymakers are cautious, with ECB Vice President Luis de Guindos noting the baseline assumption is that the oil spike will be short-lived, but warning that a longer conflict risks changing inflation expectations. Several policymakers, including French central bank Governor Francois Villeroy de Galhau and Spanish Governor Jose Luis Escriva, say a rate move at the next meeting is unlikely, emphasizing that transitory price movements should not force immediate action. ECB President Christine Lagarde stressed there is no preset pace for policy.