The aftermath of the Middle East war has led to rising oil prices, and the European Central Bank and the Bank of England are considering interest rate hikes.

The war in the Middle East has caused international oil prices to surge, with analysts indicating that European monetary authorities are considering raising benchmark interest rates. The European Central Bank (ECB) and the Bank of England (BOE) are predicted to hike rates due to this round of oil price increases. Although there are calls to shift fiscal policy tone, the decision will depend on the ongoing trend of oil prices.

According to the European interest rate swap market, there is about a 70% chance that the ECB will raise its policy rate by 0.25 percentage points twice this year. Similarly, the BOE is also assessed to have about a 50% probability of rate hikes during the same period. However, as oil prices have fallen from $120 per barrel to below $100, market expectations for rate increases have eased. The rapid response from global markets is partly due to the G7 discussing the release of reserve oil.

In recent years, the ECB has faced pressure from rising oil and commodity prices. Particularly during the 2022 Ukraine war, criticism was directed at delayed rate hikes amid soaring prices. This situation underscores the need for timely measures to avoid repeating past mistakes. However, given the risk of economic contraction, policy decisions are expected to focus on balancing these factors.

There are also disagreements within the ECB. The recent surge in energy prices has increased uncertainty about inflation trajectories, intensifying debates between dovish (favoring monetary easing) and hawkish (favoring tightening) factions. While some believe falling oil prices could quell such debates, the current situation remains highly volatile.

Experts believe that how long oil prices can stay above current levels will be a key factor in deciding whether to raise rates. In this context, a delicate balance must be struck between economic growth and price stability, with future directions depending on the continued fluctuations in international oil prices.