Published On 7/7/2026
European Central Bank Executive Board member Isabel Schnabel said that the euro zone economy has not yet returned to its conditions before the Iranian war, despite the decline in oil prices, noting that underlying inflationary pressures are still strong and that the risks of rising prices continue.
Schnabel added, during an event in Rome, that the decline in oil prices does not mean the end of the repercussions of the war, explaining that the peace agreement is still fragile, while markets continue to expect higher oil prices in the long term, and gas prices remain about 40% higher than they were before the war.
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She pointed out that refinery profit margins are still double their pre-war levels, with continued pressure on pipelines and supply chains, and core inflation remaining at high levels.
She added that Europe is also facing new shocks, including a heat wave and the super El Niño phenomenon, which may push food prices to rise, as well as water levels approaching critical limits in some areas.
Schnabel’s statements enhance the possibilities of keeping the option of tightening monetary policy on the table, despite declining expectations that the European Central Bank will raise interest rates during its meeting scheduled for July 22 and 23.
Inflationary pressures
For his part, Belgian Central Bank Governor Pierre Wunsch said that the impact of the energy price shock resulting from the war was beginning to fade from the markets, but he warned that the European Central Bank should not wait long if it decides to implement a final increase in interest rates.
He added that the bank would receive new economic forecasts in September, but he feared that any action would come too late if inflationary pressures rose again.
This comes at a time when the repercussions of the US-Iranian war are still casting a shadow on the euro zone economy, after the disruption of energy supplies and the closure of the Strait of Hormuz during the war period led to high inflation rates in a number of European economies, as inflation in the euro zone reached about 3.2% in May, driven by the strong increase in energy prices.
The European Central Bank had previously raised interest rates for the first time since 2023 in response to war-related inflationary pressures, while market pricing currently indicates the likelihood of implementing a new interest rate hike during September if price pressures continue.
On the other hand, the European Central Bank believes that the global economic environment has become more vulnerable to geopolitical shocks, in light of the continuing trade tensions and fluctuations in energy markets, which makes the course of monetary policy more closely linked to inflation developments and external risks during the next stage.
