Economic impact of the conflict in Iran and the closure of the Strait of Hormuz

The ongoing conflict in Iran, now entering its second month, has resulted in the closure of the Strait of Hormuz, causing oil prices to consistently exceed 100 dollars per barrel. Officials in Brussels and Frankfurt warn that if the hostilities do not conclude by the end of April, the current energy shock could escalate into a severe global energy crisis. The European Central Bank (ECB) has identified late April as a critical juncture for its monetary policy. European sources indicate that the ECB is likely to implement a 0.25 percentage point interest rate hike during its meeting on April 30 if the conflict persists. ECB President Christine Lagarde has expressed concerns regarding the impact on Eurozone inflation and economic growth. The bank's baseline scenario for the second quarter of the year projects average prices of 90 dollars per barrel for oil and 50 euros per MWh for natural gas. These developments are expected to significantly affect the European economy due to its heavy reliance on fossil fuel imports.