Joachim Nagel, President of the Deutsche Bundesbank, addresses journalists during a press briefing at the G7 Finance Ministers and Central Bank Governors meeting in Banff, Alberta, Canada, on May 22, 2025. (Credit: Cole Burston /AFP.)
BEIRUT — Joachim Nagel, president of the German Federal Bank, warned Monday about the risks of an oil shock due to the conflict between Israel and Iran. He urged the eurozone not to ease monetary policy, even though inflation has recently returned to around 2 percent.
Nagel said in a speech in Frankfurt that the impact of the escalating attacks between the two countries "remain uncertain." He added that a prolonged conflict "could cause a sharp rise in oil prices" and "upend our forecasts" for inflation and economic growth.
Oil prices rose slightly Monday morning after surging as much as 13 percent last Wednesday during the initial Israeli strikes on Iran. By 7:20 a.m. GMT, U.S. WTI crude was up 1.15 percent at 73.82 dollars per barrel, while Brent crude from the North Sea gained 0.99 percent to 74.97 dollars per barrel.
In May, inflation in the eurozone fell to 1.9 percent, according to Eurostat’s first estimate, supporting the European Central Bank’s decision to cut interest rates in June for the eighth time in a year. The ECB also lowered its inflation forecasts for 2025 (2.0 percent) and 2026 (percent), mainly due to falling energy prices and a stronger euro.
Nagel said the growing risks from a possible prolonged Middle East conflict, combined with ongoing trade tensions with the U.S., make it "imperative" for the ECB to stay "flexible," without committing "to either a new rate cut or a prolonged pause." Nagel is known as a "hawk" with a traditional monetary stance.
In June, the ECB lowered its main deposit rate to 2.0 percent, a level no longer seen as restrictive, after it peaked at 4.0 percent in 2023 to fight high inflation following the war in Ukraine.
ECB President Christine Lagarde emphasized that rate decisions would be made "meeting by meeting," based on data changes, but she also spoke of the "end of a monetary cycle." Experts expect the ECB to pause rate cuts at its next meeting at the end of July.