The energy crisis may lead to a recurrence of the European economic crisis... The European Central Bank is considering raising interest rates

Europe’s economy has recently faced a severe crisis due to the energy crisis triggered by the military conflicts between the United States, Israel, and Iran. This has raised concerns at the European Central Bank (ECB) about the short-term impact of soaring energy prices on inflation and the negative effects on the overall economy.

European Central Bank Chief Economist Philip Lane warned in an interview with local media that rising energy prices would exert upward pressure on inflation and cause difficulties in the short term. Behind this economic disaster is Iran’s threat to block the Strait of Hormuz, a key oil transportation route, which is expected to lead to a rise in global oil prices.

After the Ukraine war in 2022, Europe experienced a severe energy crisis, with prices soaring significantly. This made the European economy heavily dependent on falling energy prices. However, the current instability in energy prices has once again highlighted vulnerabilities, and the likelihood of European countries raising interest rates is increasing. Market expectations for the ECB’s policy rate have shifted rapidly from rate cuts to rate hikes.

Global investment banks like Morgan Stanley predict that a $10 per barrel increase in international oil prices could raise Europe’s inflation rate by 0.4 percentage points and reduce growth by 0.15 percentage points. In fact, concerns are already evident, such as the surge in natural gas prices on the Dutch TTF trading platform.

The future direction of Europe’s economy depends on how long this conflict lasts and how it evolves. Attention is also needed on whether U.S. military responses will go beyond short-term chaos and develop into long-term economic instability. In this context, European policymakers may need to develop comprehensive measures to curb inflation and stabilize the economy.