Global energy shock won’t end with conflict ceasefire, experts warn, highlighting ongoing challenges in the energy sector.

Global Energy Shock Persists Despite Potential Middle East Agreement

Gabriel Makhlouf, a member of the European Central Bank (ECB) board, stated that reaching a temporary agreement to end the conflict in the Middle East will not necessarily lead to an immediate resolution of the global energy shock. He emphasized that damage to energy infrastructure could keep price pressures in place for an extended period.

Impact of Rising Fuel Prices

Makhlouf highlighted that the ECB raised interest rates last week for the first time in nearly three years, leaving the door open for further monetary tightening. This move aims to mitigate the impact of rising fuel prices caused by the Iran conflict on other commodities.

He noted that while a preliminary agreement between the United States and Iran is “welcome,” many details still require clarification, according to Reuters. Makhlouf reiterated that ending the conflict does not guarantee an immediate end to the shock.

Challenges in Recovery and Supply Chain Restoration

Makhlouf pointed out that restoring supply chains and reducing energy prices may take considerable time. The situation is further complicated by damage to infrastructure, suggesting that production recovery could be slow.

He also mentioned ongoing uncertainty regarding the reopening of the Strait of Hormuz, which Iran has kept closed since U.S. and Israeli attacks in February. These factors contribute to sustained pressure on energy prices.

ECB’s Ongoing Efforts to Combat Inflation

Philip Lane, the ECB’s chief economist, stated during the Reuters Next conference that the bank will continue its proactive measures to curb high inflation. This commitment will persist even after energy prices decline following any agreement.

Investors speculate that the ECB may implement another interest rate hike later this year, potentially in September or October. However, the likelihood of an additional increase in winter remains low, with the current deposit rate at 2.25%.

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