A protracted closure of the key Hormuz Strait amid the confrontation between the US and Iran could lead to interest rate hikes and an economic slowdown in the European Union, Greece’s central bank chief said Thursday.
Yannis Stournaras said this would be “a very adverse development.” About a fifth of the world’s oil and gas is shipped through the strait that has closed following the US and Israeli attacks on Iran and Tehran’s retaliation.
“Everything depends of the Strait of Hormuz, the chokepoint … that right now determines energy prices all over the world,” Stournaras told the Energy Transition Summit organized by the Financial Times and Kathimerini.
“If it remains closed I am afraid that we will continue to have prices where we are now, about $105 for Brent. Before the war it was under $70,” he added. “I hope that does not happen because if it does, if it continues, the European Central Bank has no other option but to raise interest rates.”
Stournaras, who is a member of the ECB’s Governing Council, said the bank has three scenarios on the effects of the Middle East crisis on EU inflation.
“We are between the normal and the adverse scenario right now,” he said. “Inflation has climbed to 3% in Europe – our forecast for the year in Europe is 2.6% – [and] for Greece our forecast for the year is 3.1% and it reached 4.6% in April.”
Asked about the potential effects of forthcoming national elections in Greece – due by mid-2027 – Stournaras voiced certainty that the domestic political system “will behave responsibly, and the country will always have a government and a Parliament that, if and whenever necessary, will take the required measures.”
“The worst thing is inertia, especially when such strong winds are blowing from abroad,” he added.