Oil Price Shock: Fossil Fuels Drive Prices and Inflation Higher Again – ECB Raises Interest Rates Again
Muenster, Germany – The renewed surge in fossil fuel prices is pushing inflation in the euro area significantly higher. The European Central Bank (ECB) has responded by raising all three of its key interest rates by 0.25 percentage points each. The deposit rate thus rises to 2.50 percent.
Inflation Rises to 3.3 Percent – Energy Prices Up 14.3 Percent
According to a flash estimate from Eurostat, the inflation rate in the euro area rose to 3.3 percent in August, up from 2.9 percent in July. Energy prices were 14.3 percent above the previous year's level. Excluding energy, the inflation rate was 2.2 percent.
In its monetary policy statement of September 10, the ECB cited the conflict in the Middle East as the main cause of the persistent inflationary pressure. The situation in the Strait of Hormuz had recently escalated again: the United States destroyed five Iranian oil tankers, and Iran responded by attacking ships in the region as well as a US base in Jordan. The growing risks to oil supply pushed the price of Brent crude back above 100 US dollars per barrel on September 9. The ECB also noted that the effects of Russia's war against Ukraine continue to weigh on energy prices.
The ECB expects inflation to remain above its 2 percent target for longer. The central bank forecasts average inflation of 3.0 percent for 2026, 2.5 percent for 2027 and 2.1 percent for 2028.
Parallels to 2022: Gas Was the Main Driver of Inflation Back Then
The development is reminiscent of the surge in inflation following Russia's attack on Ukraine. Average inflation in the euro area jumped from 2.6 to 8.4 percent in 2022. According to the ECB, energy prices were the most important driver: nearly half of the increase in average headline inflation over the course of 2022 was directly attributable to energy price developments.
Natural gas prices rose particularly sharply. Between July 2021 and the first half of 2022, European gas prices increased by 145 percent according to ECB calculations, while oil prices rose by 46 percent. High gas prices also drove up wholesale electricity prices. Through higher production and input costs, the price pressure subsequently spread to other parts of the economy.
ECB Raises Interest Rates – Concerned About Second-Round Effects
On September 10, 2026, the ECB Governing Council raised all three key interest rates by 0.25 percentage points. The deposit rate rises to 2.50 percent, the main refinancing rate to 2.65 percent, and the marginal lending rate to 2.90 percent.
Higher interest rates cannot influence the price of oil and gas themselves. What matters for monetary policy is rather whether the fossil fuel price shock is passed through production costs and consumer prices to other parts of the economy, and whether it triggers second-round effects through higher wage demands that would entrench inflation over the longer term.
IWR: Fossil Energy Imports Are Inseparably Linked to Price and Geopolitical Risks – Renewable Energy Offers Protection Against Inflation
The current oil price shock once again shows how geopolitical conflicts affect the European economy through international fossil energy markets. While the gas price shock was the main driver of inflation in 2022, the current shock centers on the price of oil. Dependence on fossil energy imports thus transfers price and geopolitical risks to businesses and consumers.
"The drivers behind rising prices have a name: fossil energy. The best protection against inflation is the transformation from oil and gas to electricity from domestic renewable energy sources," says IWR Managing Director Dr. Norbert Allnoch.
The expansion of renewable energy and the electrification of transport, heating and industry therefore have a geopolitical and economic dimension in addition to their climate-policy significance. The more strongly imported oil and gas are replaced by electricity from domestic renewable energy sources, the lower the dependence on geopolitically influenced fossil energy markets and the associated inflation risks will be.
Source: IWR Online, 11 Sep 2026
