By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member José Luis Escrivá said on Monday that oil prices should gradually move towards levels consistent with milder scenarios over the coming months if the recent US-Iran agreement holds.
In an interview with Spanish newspaper Expansión, Escrivá, who heads the Banco de España, described the reopening of the Strait of Hormuz as "certainly good news" and said it should help reduce the exceptionally high uncertainty that has complicated monetary policymaking in recent months.
“I think the logical expectation is that, if this agreement holds in the coming weeks — and we need to remain cautious because we have seen many twists and turns on this issue — oil prices should gradually move closer to the more benign scenarios over the next few months,” he said.
Escrivá said that significant uncertainty remained over whether oil prices would return to pre-conflict levels, pointing to an estimated 12% decline in oil production, possible damage to energy infrastructure and historically low inventories.
“This time we need to look not only at the price of oil itself, but also at whether these production-related disruptions prove persistent or are resolved quickly,” he added.
He said the ECB's latest projections pointed to higher inflation but only a limited impact on economic growth from the conflict in the Middle East.
While acknowledging some loss of confidence and a moderation in activity, he said the slowdown had been less pronounced than initially feared and highlighted the resilience of the Spanish, European and global economies.
According to Escrivá, this resilience suggested that global supply chains had a greater capacity to absorb unexpected shocks than previously assumed.
Asked about inflation, he said the ECB had to “closely monitor” oil and commodity prices more broadly.
“But the most important conclusion from the latest meeting of the ECB Governing Council, where we decided to raise interest rates by 25bp, is that beyond the direct impact on energy prices, we have observed spillovers into other prices where energy is an important input, such as transport-related services,” he said.
Escrivá added that policymakers would also need to watch for second-round effects on wages, which would depend on how persistent the inflation shock proved to be.
Related articles: